The learning cost of interest rate reversals.
Many central banks in many time periods have sought to avoid interest rate reversals, but at present there is no good explanation of this phenomenon. Our analysis identifies a new learning cost associated with reversing the interest rate. In a standard monetary model with forward-looking expectations, data uncertainty and parameter uncertainty, a policy that frequently reverses the interest rate makes learning the key parameters of the model more difficult. Optimal monetary policy internalise...Expand abstract
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- Peer review status:
- Peer reviewed
- Accepted Manuscript
- Copyright holder:
- Elsevier B.V.
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- © 2006 Elsevier B.V. All rights reserved. NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Monetary Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Monetary Economics, 53, 8, (November 2006) DOI#10.1016/j.jmoneco.2005.08.017
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