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The learning cost of interest rate reversals.

Abstract:

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...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Accepted Manuscript

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Publisher copy:
10.1016/j.jmoneco.2005.08.017

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Institution:
University of Oxford
Publisher:
Elsevier B.V. Publisher's website
Journal:
Journal of Monetary Economics Journal website
Volume:
53
Issue:
8
Publication date:
2006-11-05
DOI:
URN:
uuid:a1a84720-f41f-4824-b24d-48aa4e4612db
Local pid:
oai:economics.ouls.ox.ac.uk:15146
Language:
English

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