Interest Rates and the Conduct of Monetary Policy

36 Pages Posted: 3 Nov 2012

See all articles by Marvin Goodfriend

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: August 1, 1990

Abstract

The paper describes key aspects of actual Federal Reserve interest rate targeting procedures and addresses a number of issues in light of these stylized facts. It reviews the connection between rate smoothing and price level trend-stationarity. It critiques interest rate targeting as inflation tax smoothing. It argues that stabilization policy implemented by interest rate targeting may inadvertently induce martingale-like behavior in nominal rates and inflation. The paper explains why central bankers prefer continuity of the short rate and indirect rate targeting. Lastly, it surveys empirical evidence of the Fed's influence over short-term interest rates.

Suggested Citation

Goodfriend, Marvin, Interest Rates and the Conduct of Monetary Policy (August 1, 1990). Federal Reserve Bank of Richmond Working Paper No. 90-6. Available at SSRN: https://ssrn.com/abstract=2123586 or http://dx.doi.org/10.2139/ssrn.2123586

Marvin Goodfriend (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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