Interest rates and monetary policy

Gazioglu, S.
McCausland, W. D.
This article conducts a thorough intertemporal analysis of nominal interest rate based monetary policy. Its main contribution is to show how such a policy can have different effects depending on the assumptions made about the saving and borrowing behaviour of firms. We consider two cases: (i) consumers are savers and firms are borrowers and (ii) both consumers and firms are borrowers (the nation as a whole is borrowing from abroad). In one case we confirm conventional wisdom, but in the other case we find there may be unexpected and surprising results. Moreover, our analysis has important implications for both inflation and nominal exchange rate targeting policies.


Macroeconomic and institutional determinants of current account deficits
Ozmen, E (Informa UK Limited, 2005-07-15)
This study empirically investigates the effects of institutional and macroeconomic policy variables on current account deficits (CAD). Based on cross-section data for a broad number of countries, the results suggest that better governance increases whilst 'original sin' decreases the ability of an economy to sustain CAD. Exchange rate flexibility and openness appear to put a discipline on CAD. Consistent with the equity home bias and Feldstein-Horioka puzzle, CAD decrease with country size. The net impacts ...
Interest rate rules and welfare in open economies
Senay, Ozge (Wiley, 2008-07-01)
This paper analyses the welfare performance of a set of five alternative interest rate rules in an open economy stochastic dynamic general equilibrium model with nominal rigidities. A rule with a lagged interest rate term, high feedback on inflation and low feedback on output is found to yield the highest welfare for a small open economy. This result is robust across different degrees of openness, different sources of home and foreign shocks, alternative foreign monetary rules and different specifications f...
A quantitative analysis of cost-push shocks and optimal inflation volatility
Senay, Ozge; Sutherland, Alan (Informa UK Limited, 2008-01-01)
This article presents a quantitative analysis of optimal inflation volatility in a simple sticky-price general equilibrium model subject to both supply and cost-push shocks. It is found that optimal policy implies a relatively small degree of inflation volatility even when cost-push shocks are the dominant source of economic disturbance. In addition, it is found that optimal policy generates only a very small welfare gain when compared to strict inflation targeting.
Monetary policy trilemma, inflation targeting and global financial crisis
Gulsen, Eda; Özmen, Erdal (Wiley, 2020-04-01)
We empirically investigate the validity of the monetary policy trilemma postulation for emerging market (EME) and advanced (AE) economies under different exchange rate and monetary policy regimes before and after the recent global financial crisis (GFC). Consistent with the dilemma proposition, domestic interest rates are determined by global financial conditions and the FED rate even under floating exchange rate regimes (ERR) in the long-run. The impact of the FED rates is higher in EME than AE and EME are...
Foreign money shocks and the welfare performance of alternative monetary policy regimes
Senay, Ozge; Sutherland, Alan (Wiley, 2007-01-01)
The welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two-country sticky-price model. Money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak, but a fixed rate is superior when the expenditure switching effect is strong. However, price targeting is superior to both these regimes for all values of the expenditure switching effect. A welfare-maximising ...
Citation Formats
S. Gazioglu and W. D. McCausland, “Interest rates and monetary policy,” APPLIED ECONOMICS, pp. 2005–2012, 2009, Accessed: 00, 2020. [Online]. Available: