The learning cost of interest rate reversals
Ellison, Martin. (2006) The learning cost of interest rate reversals. JOURNAL OF MONETARY ECONOMICS, 53 (8). pp. 1625-1637. ISSN 0304-3932Full text not available from this repository.
Official URL: http://dx.doi.org/10.1016/j.jmoneco.2005.08.017
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 internalises this learning cost and therefore has a lower number of interest rate reversals. (c) 2006 Elsevier B.V. All rights reserved.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
|Journal or Publication Title:||JOURNAL OF MONETARY ECONOMICS|
|Publisher:||ELSEVIER SCIENCE BV|
|Official Date:||November 2006|
|Number of Pages:||13|
|Page Range:||pp. 1625-1637|
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