On the optimality of interest rate smoothing

  • 28 Pages
  • 2.42 MB
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by
National Bureau of Economic Research , Cambridge, MA
Economic development -- Mathematical models., Interest rates -- Mathematical models., Monetary policy -- Mathematical mo
StatementSergio Rebelo, Danyang Xie.
SeriesNBER working paper series -- working paper 5947, Working paper series (National Bureau of Economic Research) -- working paper no. 5947.
ContributionsXie, Danyang, 1964-, National Bureau of Economic Research.
The Physical Object
Pagination28 p. :
ID Numbers
Open LibraryOL22410446M

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On the Optimality of Interest Rate Smoothing Sergio Rebelo, Danyang Xie. NBER Working Paper No. Issued in February NBER Program(s):Economic Fluctuations and Growth, Monetary Economics This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal.

Introduction. The US Federal Reserve System is often described as following a policy of interest rate smoothing (Goodfriend, ).In this paper, we discuss some continuous-time cash-in-advance models in which interest rate smoothing is optimal: the optimal monetary policy requires a Cited by: Rebelo, S.

& Xie, D., "On the Optimality of Interest Rate On the optimality of interest rate smoothing book RCER Working PapersUniversity of Rochester - Center for Economic Research (RCER). Sergio Rebelo & Danyang Xie, "On the Optimality of Interest Rate Smoothing," NBER Working PapersNational Bureau of Economic Research, Inc.

Optimal Interest-Rate Rules: I. General Theory Marc P. Giannoni, Michael Woodford. NBER Working Paper No. Issued in January NBER Program(s):Economic Fluctuations and Growth, Monetary Economics This paper proposes a general method for deriving an optimal monetary policy rule in the case of a dynamic linear rational-expectations model and a quadratic objective function for policy.

Furthermore, lagged interest rate variables take into account interest rate smoothing in policy setting (Clarida, Gali and Gertlerand Woodford, Thus, the following equation is Author: Michael Woodford. Downloadable (with restrictions). This paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions.

It shows, in the context of a simple model of optimizing private-sector behaviour, that assignment of an interest-rate smoothing objective to the central bank may be desirable, even when. Under this older definition of smoothing, interest-rate changes are uncorrelated with the interest rate being a random walk.

Mankiw () and Barro () have argued that such an outcome is appropriate on the grounds that it smooths the inflation tax. Optimal Interest-Rate Smoothing ⁄ Michael Woodford Department of Economics Princeton University Princeton, NJ USA June Abstract This paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually.

Rotondi, Zeno () Designing instrument rules for monetary stability: the optimality of interest-rate smoothing (Discussion Papers in Economics and Econometrics, 8) Southampton, UK.

University of Southampton 38 : Zeno Rotondi. Interest rate smoothing and financial stability Article in SSRN Electronic Journal 14(2) July with 3, Reads How we measure 'reads'.

I really find "Interest Rate Modeling" by Leif Andersen and Vladimir Piterbarg not only the best practical guide on interest rates derivatives modeling but also one of the best books on quantitative finance, in general. It is no wonder that many quants supporting asset classes other than interest rates derivatives bought this book as well/5(12).

How to build a framework for forecasting interest rate market movements. With trillions of dollars worth of trades conducted every year in everything from U.S. Treasury bonds to mortgage-backed securities, the U.S. interest rate market is one of the largest fixed income markets in the world/5(28).

The predictability of the policy rate results in high predictability of other interest rates that are important to banks (Cook & Hahn,Goodfriend,Thornton, ). 4 To illustrate, consider the spread between the 3-month CD rate and the Federal Funds target rate (an overnight rate).On 75% of the days during the period –, the CD rate has remained within 10 basis points of Cited by: Real-Time Estimation of Trend Output and the Illusion of Interest Rate Smoothing* Kevin J.

Lansing Senior Economist Federal Reserve Bank of San Francisco Empirical estimates of the Federal Reserve’s policy rule typically find that the regression coefficient on the lagged federal funds rate is around and strongly significant. The Smoothing of Official Interest Rates 3. The Literature on Interest-rate Smoothing The literature on interest-rate smoothing has two broad strands.

The older strand centres around the issue of whether a central bank should target a monetary aggregate or an interest rate.

In this literature, a central bank that adjusts the money supply to. A Person of Interest, the novel by Susan Choi (not the popular TV series) burst onto my reading list for as the latest selection of the Newcomb College Book Club.

Newcomb, my alma mater, established the club a few years ago to bring together alums across the country via book club discussion groups and to establish a common ground for /5. Note that this optimality condition is not a \consumption function." A consumption function would express current consumption as a function of income, the interest rate, etc.

This condi-tion just relates current to future consumption.

Description On the optimality of interest rate smoothing EPUB

It could hold for two low values of current and +1). Treasury Bond Basis - appears very specialized at first, but is riddled with practical examples in bond math and trading.

includes numerous examples on carry, mark-to-market gains/losses, hedge PnL, repo, curve behavior. naturally, as it's focused on futures-bond basis, book is geared towards relative value. whenever possible though, authors. The author tracks the ECB’s policy of interest rate smoothing as well as the Fed’s policy moves over the period.

The ECB policy actions may have been too loose for fast-growing periphery countries (Ireland, Greece, or Spain) and too tight for slow-growing core countries (France and Germany), but adequate for the euro area as a whole. On the optimality of interest rate smoothing Author(s): Rebelo, S.; Xie, DY ; Testing interest rate models for China's repo market Author(s): Zhao, Huimin ; Cited by: 6.

This is an ex-library book and may have the usual library/used-book markings book has soft covers. In good all round condition. Please note the Image in this listing is a stock photo and may not match the covers of the actual item,grams, ISBN smoothing model.

In varieties models of endogenous growth, a subsidy to R&D can generate the Pareto optimal long-run growth rate. In quality-ladders models of endogenous growth, a rise in competition among providers of intermediate goods lowers the long-run growth rate. Size: KB. In the design of experiments, optimal designs (or optimum designs) are a class of experimental designs that are optimal with respect to some statistical creation of this field of statistics has been credited to Danish statistician Kirstine Smith.

In the design of experiments for estimating statistical models, optimal designs allow parameters to be estimated without bias and with. Book series: Chapman and Hall/CRC Financial Mathematics Series. Summary Containing many results that are new, or which exist only in recent research articles, Interest Rate Modeling: Theory and Practice, 2nd Edition portrays the theory of interest rate modeling as a three-dimensional object of finance, mathematics, and by: 6.

1 Interest Rate Smoothing Let us look at short-term interest rate in Japan. The policy instrument of the Bank of Japan (thereafter BOJ) is oécially nominal rate of call money, which corresponds to the Federal Funds rate in the U.S. In Figure 1, a dotted line illustrates.

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3 Interest Rate Smoothing 81 where r t is the nominal interest rate and r∗ t is the target interest rate. The main motivation for the partial-adjustment specification is empirical fit, but it is often interpreted as evidence of central banks’. "Broadly speaking, we start with the Friedman result that the optimal nominal interest rate is zero, so the optimal inflation rate is the negative of the real rate of interest." First: There is NOT a single, magical interest rate that everyone and their brother borrows at.

So what if. the main theories of interest rates helped us to know and measure with interest rate from different perspectives and debated in the world today.

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Keywords: Theories of interest rate, operational mechanisms, causation model, Debt INTRODUCTION Today, everything has a price. In finance, the price means the interest Size: KB. Abstract: This paper examines the determinants of the natural rate of unemployment using a combined cross section and time series data set.

The results suggest that industry composition affects the natural rate. In particular, a higher share of temporary employment in a local labor market tends to lower the natural rate of unemployment--most likely through the matching function.

t, and it pays interest on its debt, r t. Its revenue each period is equal to output. Its costs each period are the wage bill, investment in new physical capital, and services costs on its debt.

It can raise its cash ow by issuing new debt (i.e. d t+1 d t raises cash ow). It discounts future cash ows by .By an operational interest-rate rule we mean an interest-rate rule that satisfies three requirements.

First, it prescribes that the nominal interest rate is set as a function of a few readily observable macroeconomic variables. In the tradition of John Taylor's seminal paper, (11) we focus on rules whereby the nominal interest rate depends.

A History of Interest Rates presents a very readable account of interest rate trends and lending practices over four millennia of economic history. Despite the paucity of data prior to the Industrial Revolution, authors Homer and Sylla provide a highly detailed analysis of money markets and borrowing practices in major economies.

Underlying the analysis is their assertion that "the free market 2/5(1).