1,721,093 research outputs found
Term structure and interest rate stabilization policies in the Greenspan era
Full text linkPrevious studies attribute the failure of the expectations theory, using the 3–6-month Treasury bill spread, to the Federal Reserve’s commitment to stabilizing interest rates. We find that with the advent of Greenspan, this spread predicts future changes in the short rate in the USA. This success can be explained by interest rate smoothing and greater transparency by the Fed. By enhancing the management of market expectations and reducing uncertainty, the central bank improves interest rate predictability and gains credibility from the market, as lower term premia suggest
Financial imbalances and gradualism
No full textIn the last years, in the major OECD economies, while inflation has become lower and more stable, episodes
of financial instability and large cycles in asset prices have shown up with (often) non-negligible effects on
economic activity. These facts should call for a larger concern with financial imbalances by the central bank.
Adapting the model by Caplin and Leahy (1996)—where a central bank, which is uncertain about the state of
the economy and its reaction to policy, seeks an optimal search strategy to influence private agents'
responses—by substituting the central bank's price stability objective with a financial stability one, we find
that the monetary authority should follow a less aggressive policy than the one suggested by the original
model. However, initial conditions play a crucial role in determining the degree of gradualism by the policy
maker with the policy becoming more and more aggressive as the initial interest rate shrinks
The Asymmetric effects of monetary policy
No full textThe paper deals with the asymmetric effects on output of tight and easy monetary policy: the output reduction following a negative monetary policy shock appears bigger than the expansion induced by similar sized positive
shock. The paper first reviews historical evidence of asymmetry, focusing on the
United States, Japan and Italy. This is followed by a review of the econometric
literature on monetary policy asymmetry and consideration of the theoretical
reasons that can explain this asymmetry
The asymmetric effects of monetary policy in a matching model with a balance sheet channel
No full textASYMMETRIC PREFERENCES FOR INTEREST RATE VARIABILITY AND NON-LINEAR MONETARY POLICY INERTIA
No full textThe central bank as shaper and observer of events: The case of the yield spread
No full textThe yield spread has commonly been employed as a successful predictor of economic growth and recessions, although its marginal predictive power has decreased since the 1990s. Notably, the yield spread's declining power to predict US economic activity coincided with its growing power to predict US interest rate changes. In my view, these phenomena are inevitably linked and share one cause. The central bank intended to enhance both its transparency and credibility through greater information disclosure; this disclosure improved interest rate predictability but might also have crowded out useful private information formerly in the yield spread that helped predict economic activity
Asymmetric monetary policy: empirical evidence for Italy
No full textA growing body of empirical work has examined the potential asymmetry in the effects of monetary policy on United States real activity. This study looks for such an empirical evidence for Italy in the period 1982-1998. Monetary shocks are obtained as residuals from a central bank reaction function where the three-months interbank rate is taken as the indicator of the monetary policy stance. The effects of these positive and negative shocks on output are statistically different from zero and the null of symmetry between the two is rejected in favour of negative shocks having a greater impact on real output growth, thus confirming an asymmetric effect of monetary policy even for Italy.
Asymmetric interest rate smoothing: the Fed approach
No full textThe central bank could have asymmetric preferences for interest rate smoothing depending on the direction of
the monetary policy’s stance. An empirical analysis for the Volcker–Greenspan period strongly supports this
possibility for the Federal Reserve
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