Money As Indicator for the Natural Rate of Interest

Released on by Mr.Helge Berger
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  • Money As Indicator for the Natural Rate of Interest Book Detail

  • Author : Mr.Helge Berger
  • Release Date : 2012-01-01
  • Publisher : International Monetary Fund
  • Genre : Business & Economics
  • Pages : 52
  • ISBN 13 : 1463930550
  • File Size : 29,29 MB
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Money As Indicator for the Natural Rate of Interest by Mr.Helge Berger PDF Summary

Book Description: The natural interest rate is of great relevance to central banks, but it is difficult to measure. We show that in a standard microfounded monetary model, the natural interest rate co-moves with a transformation of the money demand that can be computed from actual data. The co-movement is of a considerable magnitude and independent of monetary policy. An optimizing central bank that does not observe the natural interest rate can take advantage of this co-movement by incorporating the transformed money demand, in addition to the observed output gap and inflation, into a simple but optimal interest rate rule. Combining the transformed money demand and the observed output gap provides the best information about the natural interest rate.

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Money and the Natural Rate of Interest

Money and the Natural Rate of Interest

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We examine the role of money in three environments: the New Keynesian model with separable utility and static money demand; a nonseparable utility variant with