The Optimal Design of Interest Rate Target Changes

Guthrie, Graeme; Wright, Julian

doi:10.2139/ssrn.313748

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The Optimal Design of Interest Rate Target Changes

39 Pages Posted: 15 Oct 2002

See all articles by Graeme Guthrie

Julian Wright

National University of Singapore (NUS) - Department of Economics

There are 2 versions of this paper

Date Written: April 2002

Abstract

This paper derives the optimal size and timing of interest rate target changes. Despite the simplicity of the optimal rule, we are able to replicate a number of puzzling features of interest rate targeting observe in practice, as well as explain some dynamic properties of market interest rates. Extensions to deal with monetary policy cycles, anticipated and unanticipated target changes, and the effect of FOMC meeting dates are discussed.

Keywords: Central Banks, Federal Funds Rate, Fed, Interest Rate Smoothing

JEL Classification: E43, E52, E58

Suggested Citation: Suggested Citation

Guthrie, Graeme and Wright, Julian, The Optimal Design of Interest Rate Target Changes (April 2002). Available at SSRN: https://ssrn.com/abstract=313748 or http://dx.doi.org/10.2139/ssrn.313748