EconPapers    
Economics at your fingertips  
 

Interest rate pegs and the reversal puzzle: On the role of anticipation

Rafael Gerke, Sebastian Giesen and Daniel Kienzler

No 50/2020, Discussion Papers from Deutsche Bundesbank

Abstract: We revisit the reversal puzzle: A counterintuitive contraction of inflation in response to an interest rate peg. We show that it is intimately related to the degree of agents' anticipation. If agents perfectly anticipate the peg, reversals occur depending on the duration of the peg. If they do not anticipate the peg, reversals are absent. In the case of imperfect anticipation, implemented by a Markov-switching framework, we measure the degree of anticipation by the frequency of the peg regime. Even if the frequency of the peg takes on a value twice as large as empirically observed, the reversal puzzle is absent.

Keywords: Interest rate peg; Reversal puzzle; Regime-switching model (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/224478/1/1732487456.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:502020

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).

 
Page updated 2024-12-28
Handle: RePEc:zbw:bubdps:502020