“Wait-and-See” Monetary Policy
<jats:p>This paper develops a model of the optimal timing of interest rate changes. With fixed adjustment costs and ongoing uncertainty, changing the interest rate involves the exercise of an option. Optimal policy therefore has a “wait-and-see” component, which can be quantified using option...
| Hauptverfasser: | , |
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| Format: | Journal article |
| Sprache: | English |
| Veröffentlicht: |
Cambridge University Press
2017
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| _version_ | 1826284202969006080 |
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| author | Lei, X Tseng, M |
| author_facet | Lei, X Tseng, M |
| author_sort | Lei, X |
| collection | OXFORD |
| description | <jats:p>This paper develops a model of the optimal timing of interest rate changes. With fixed adjustment costs and ongoing uncertainty, changing the interest rate involves the exercise of an option. Optimal policy therefore has a “wait-and-see” component, which can be quantified using option pricing techniques. We show that increased uncertainty makes the central bank more reluctant to change its target interest rate, and argue that this helps explain recent observed deviations from the Taylor Rule. An optimal wait-and-see policy fits the target interest rates of the Fed and Bank of Canada better than the Taylor Rule.</jats:p> |
| first_indexed | 2024-03-07T01:10:21Z |
| format | Journal article |
| id | oxford-uuid:8cc9d39b-3a3c-42b3-a82b-d1ef2d4098db |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T01:10:21Z |
| publishDate | 2017 |
| publisher | Cambridge University Press |
| record_format | dspace |
| spelling | oxford-uuid:8cc9d39b-3a3c-42b3-a82b-d1ef2d4098db2022-03-26T22:46:51Z“Wait-and-See” Monetary PolicyJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:8cc9d39b-3a3c-42b3-a82b-d1ef2d4098dbEnglishSymplectic Elements at OxfordCambridge University Press2017Lei, XTseng, M<jats:p>This paper develops a model of the optimal timing of interest rate changes. With fixed adjustment costs and ongoing uncertainty, changing the interest rate involves the exercise of an option. Optimal policy therefore has a “wait-and-see” component, which can be quantified using option pricing techniques. We show that increased uncertainty makes the central bank more reluctant to change its target interest rate, and argue that this helps explain recent observed deviations from the Taylor Rule. An optimal wait-and-see policy fits the target interest rates of the Fed and Bank of Canada better than the Taylor Rule.</jats:p> |
| spellingShingle | Lei, X Tseng, M “Wait-and-See” Monetary Policy |
| title | “Wait-and-See” Monetary Policy |
| title_full | “Wait-and-See” Monetary Policy |
| title_fullStr | “Wait-and-See” Monetary Policy |
| title_full_unstemmed | “Wait-and-See” Monetary Policy |
| title_short | “Wait-and-See” Monetary Policy |
| title_sort | wait and see monetary policy |
| work_keys_str_mv | AT leix waitandseemonetarypolicy AT tsengm waitandseemonetarypolicy |