Gains from interest-rate smoothing in a small open economy with zero-bound aversion
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We extend the Monacelli [Monacelli, T. (2005). Monetary policy in a low pass-through environment. Journal of Money, Credit and Banking, 37(6), 1047-1066] model to allow for a central bank that penalizes nominal interest rate paths that are too close to the zero lower bound. We analytically derive the optimal interest-rate policy rule in each equilibrium under four policy regimes: (i) benchmark commitment to an ex-ante optimal monetary-policy plan; (ii) benchmark discretionary policy; (iii)...[Show more]
dc.contributor.author | Kam, Timothy | |
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dc.date.accessioned | 2015-12-07T22:51:15Z | |
dc.identifier.issn | 1062-9408 | |
dc.identifier.uri | http://hdl.handle.net/1885/27379 | |
dc.description.abstract | We extend the Monacelli [Monacelli, T. (2005). Monetary policy in a low pass-through environment. Journal of Money, Credit and Banking, 37(6), 1047-1066] model to allow for a central bank that penalizes nominal interest rate paths that are too close to the zero lower bound. We analytically derive the optimal interest-rate policy rule in each equilibrium under four policy regimes: (i) benchmark commitment to an ex-ante optimal monetary-policy plan; (ii) benchmark discretionary policy; (iii) optimal delegation to a discretionary policy maker with similar preferences to society; and (iv) optimal delegation to a discretionary policy maker with an additional taste for interest-rate smoothing. Under the commitment benchmark, the optimal interest-rate rule is proved to be intrinsically inertial, whereas this property is non-existent under discretionary policy. In the absence of commitment, there are gains to delegating policy to an interest-rate smoothing central banker. We show that while the endogenous law of one price gap in the model exacerbates the optimal policy trade-off that arises under discretionary policy, the latter feature of interest-rate smoothing acts to weaken it, by mimicking intrinsic inertia under the commitment policy. | |
dc.publisher | Elsevier | |
dc.source | North American Journal of Economics and Finance | |
dc.subject | Keywords: Optimal monetary policy; Small open economy; Stabilization bias; Zero-bound aversion | |
dc.title | Gains from interest-rate smoothing in a small open economy with zero-bound aversion | |
dc.type | Journal article | |
local.description.notes | Imported from ARIES | |
local.identifier.citationvolume | 20 | |
dc.date.issued | 2009 | |
local.identifier.absfor | 140210 - International Economics and International Finance | |
local.identifier.absfor | 140102 - Macroeconomic Theory | |
local.identifier.absfor | 140212 - Macroeconomics (incl. Monetary and Fiscal Theory) | |
local.identifier.ariespublication | u9501697xPUB50 | |
local.type.status | Published Version | |
local.contributor.affiliation | Kam, Timothy, College of Business and Economics, ANU | |
local.description.embargo | 2037-12-31 | |
local.bibliographicCitation.issue | 1 | |
local.bibliographicCitation.startpage | 24 | |
local.bibliographicCitation.lastpage | 25 | |
local.identifier.doi | 10.1016/j.najef.2009.01.001 | |
dc.date.updated | 2016-02-24T12:00:44Z | |
local.identifier.scopusID | 2-s2.0-67349185052 | |
local.identifier.thomsonID | 000207837900002 | |
Collections | ANU Research Publications |
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