An Interest Rate Peg Might Be Better than You Think

Arbeitspapier

Active interest rate policy is frequently recommended based on its merits in reducing macroeconomic volatility and being a simple and transparent policy device. In a standard New Keynesian model, we show that an even simpler policy, namely an interest rate peg, can be welfare enhancing: The minimum state variable solution and an autoregessive solution under a peg can lead to lower welfare losses than the unique solution under an active interest rate rule. Given that a peg is usually blamed to facilitate endogenous fluctuations, we further show that a peg can be implemented in a way that ensures equilibrium determinacy.

Object Details

• ISBN: 978-3-86788-128-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Ruhr Economic Papers ; No. 115

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Money Supply; Credit; Money Multipliers ; Business Fluctuations; Cycles
• Subject: Interest rate rules ; welfare losses ; equilibrium determinacy ; fundamental solutions ; Zinspolitik ; Regelgebundene Politik ; Wirtschaftspolitische Wirkungsanalyse ; Wohlfahrtseffekt ; Ungleichgewichtstheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hörmann, Markus ; Schabert, Andreas
• Event: Veröffentlichung
• (who): Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)
• (where): Essen
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/29950
• Last update: 10.03.2025, 11:44 AM CET