A BEJM Advances article.

Abstract

This paper studies two roles that long-term nominal interest rates can play in the conduct of monetary policy in a New Keynesian model. The first allows long-term rates to enter the reaction function of the monetary authority. The second considers the possibility of using long-term rates as instruments of policy. In both cases a unique rational expectations equilibrium exists. Reacting to movements in long yields does not improve macroeconomic performance as measured by the loss function. Long-term rates, however, turn out to be better instruments of monetary policy than short-term rates when the concern for inflation volatility is high.

Submitted: February 4, 2007 · Accepted: April 14, 2007 · Published: July 24, 2007

Recommended Citation

Kulish, Mariano (2007) "Should Monetary Policy Use Long-Term Rates?," The B.E. Journal of Macroeconomics: Vol. 7 : Iss. 1 (Advances), Article 15.
Available at: http://www.bepress.com/bejm/vol7/iss1/art15