The effect of uncertainty on monetary policy: how good are the brakes?
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Date
2002
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Banco Central de Chile
Abstract
Description
In most industrial countries, official interest rate changes tend to be 'smooth'. That is, rates are adjusted relatively infrequently and is small steps. Yet the path of interest rates that emerges as optimal from macroeconomic models is, in general, considerably more volatile. So are the paths of interest rates implied by simple Taylor-type rules, unless a sufficiently large weight is put on an interest rate smoothing term that penalizes large movements in the policy interest rate.
Keywords
POLÍTICA MONETARIA, TASAS DE INTERÉS, MACROECONOMÍA