Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities

Mark Setterfield

No 1320, Working Papers from Trinity College, Department of Economics

Abstract: This paper discusses central banks’ use of the interest rate as the instrument of monetary policy, in light of a reconsideration of macroeconomic theory induced by the financial crisis and Great Recession. Three main guiding principles for the future conduct of interest rate policy are identified: beware real effects; beware positive feedbacks; and beware discontinuities. The paper also reflects on the use of policy targets as a “quasi-instrument” of stabilization policy.

Keywords: Interest rates; monetary policy; central banking; New Consensus; Post Keynesian Economics (search for similar items in EconPapers)
JEL-codes: E12 E43 E52 E58 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2013-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Downloads: (external link)
http://www3.trincoll.edu/repec/WorkingPapers2013/WP13-20.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tri:wpaper:1320

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