Central Banks Going Long
41 Pages Posted: 5 Apr 2018
Date Written: March 2018
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: Suggested Citation