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The learning cost of interest rate reversals
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Ellison, Martin. (2006) The learning cost of interest rate reversals. JOURNAL OF MONETARY ECONOMICS, 53 (8). pp. 1625-1637. ISSN 0304-3932
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Official URL: http://dx.doi.org/10.1016/j.jmoneco.2005.08.017
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 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 |
| ISSN: | 0304-3932 |
| Date: | November 2006 |
| Volume: | 53 |
| Number: | 8 |
| Number of Pages: | 13 |
| Page Range: | pp. 1625-1637 |
| Identification Number: | 10.1016/j.jmoneco.2005.08.017 |
| Publication Status: | Published |
| URI: | http://wrap.warwick.ac.uk/id/eprint/32575 |
Data sourced from Thomson Reuters' Web of Knowledge
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