Monetary Policy and the Fisher Effect
6 Pages Posted: 2 Jun 2009 Last revised: 11 Jun 2013
Date Written: March 4, 1999
Abstract
Historical estimates of the informational content in the yield curve may not be relevant after a change in monetary policy. This study uses a small dynamic rational expectations model with staggered price setting to study how monetary policy affects the relation between nominal interest rates, inflation expectations, and real interest rates. The benchmark parameters, including the Fed's loss function parameters, are estimated by maximum likelihood on quarterly U.S. data. The policy experiments include stronger inflation targeting and more active monetary policy.
Keywords: optimal monetary policy, inflation expectations, forward interest rates, Kalman filter estimation
JEL Classification: E31, E43, E52
Suggested Citation: Suggested Citation