The Optimal Design of Interest Rate Target Changes

39 Pages Posted: 15 Oct 2002

See all articles by Graeme Guthrie

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Julian Wright

National University of Singapore (NUS) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2002

Abstract

This paper derives the optimal size and timing of interest rate target changes. Despite the simplicity of the optimal rule, we are able to replicate a number of puzzling features of interest rate targeting observe in practice, as well as explain some dynamic properties of market interest rates. Extensions to deal with monetary policy cycles, anticipated and unanticipated target changes, and the effect of FOMC meeting dates are discussed.

Keywords: Central Banks, Federal Funds Rate, Fed, Interest Rate Smoothing

JEL Classification: E43, E52, E58

Suggested Citation

Guthrie, Graeme and Wright, Julian, The Optimal Design of Interest Rate Target Changes (April 2002). Available at SSRN: https://ssrn.com/abstract=313748 or http://dx.doi.org/10.2139/ssrn.313748

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

Julian Wright (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

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