Central Banks Going Long

41 Pages Posted: 5 Apr 2018

See all articles by Ricardo Reis

Ricardo Reis

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: March 2018

Abstract

Central banks have sometimes turned their attention to long-term interest rates as a target or as a diagnosis of policy. This paper describes two historical episodes when this happened-the US in 1942-51 and the UK in the 1960s-and uses a model of inflation dynamics to evaluate monetary policies that rely on going long. It concludes that these policies for the most part fail to keep inflation under control. A complementary methodological contribution is to re-state the classic problem of monetary policy through interest-rate rules in a continuous-time setting where shocks follow diffusions in order to integrate the endogenous determination of inflation and the term structure of interest rates.

Keywords: affine models, ceilings, pegs, Taylor rule, Yield Curve

JEL Classification: E31, E52, E58

Suggested Citation

Reis, Ricardo A.M.R., Central Banks Going Long (March 2018). CEPR Discussion Paper No. DP12833. Available at SSRN: https://ssrn.com/abstract=3155169

Ricardo A.M.R. Reis (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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