Can money matter for interest rate policy?

On the Equivalence of Money Growth and Interest Rate Policy

Central bank behavior is often summarized by simple rules for operating targets, i.e., for a short-run nominal interest rate or for a money growth rate. In this paper we examine conditions under which these rules lead to identical fundamental solutions of a conventional business cycle model. When prices are ‡exible, forward looking interest rate rules can be equivalent to money growth policy. I...

Money Demand Sensitivity to Interest Rates: the Case of Japan’s Zero-interest Rate Policy

The goal of this paper is to provide new evidence on how the zero-interest rate policy implemented by the Bank of Japan has affected the sensitivity of money demand with respect to the opportunity cost of holding money. To the empirical ends of the analysis, the study makes use of the univariate conditional autoregressive value-at-risk (CAViaR) estimator to obtain robust quantile measures. The ...

Interest rate and output gap: Does central bank credibility matter?

This paper studies the effects of central bank credibility on nominal interest rate and output gap on 17 inflation targeting (IT) developing countries using Instrument Variables (IV) over a period that spans 24 years (1996-2019). In the first stage, using new Keynesian model is obtained “Credibility loss” index to measure the importance of central bank past performance and its deviation from it...

Global Knowledge, Local Solutions: Interest Rate and Monetary Policy

An Analysis of the Negative Interest Rate Policy and its Effects on the Efficiency of Monetary Policy in the Framework of the Money in the Utility Function Model

Today, the unconventional policy of negative interest rate is discussed in many Western societies and developed countries, and the implementation of this policy in the financial and banking system has brought growth and prosperity in many economies involved in the crisis. In fact, by applying a negative interest rate, the bank will be able to direct credit allocation to productive and priority ...