Interest-Rate Smoothing and Optimal Monetary Policy: A Review of Recent Empirical211 Evidence

摘要

The Federal Reserve and other central banks tend to change short-term interest211u001erates in sequences of small steps in the same direction and reverse the direction 211u001eof interest rate movements only infrequently. These characteristics, often 211u001ereferred to as interest-rate smoothing, have led to criticism that policy 211u001eresponds too little and too late to macroeconomic developments, suggesting to 211u001esome observers that the Federal Reserve has an objective of minimizing interest-211u001erate volatility. This paper, however, argues that interest-rate smoothing may 211u001ewell represent optimal behavior on the part of central banks whose only 211u001eobjectives are to stabilize output and inflation. Empirical results are presented 211u001efrom several recent papers that offer three explanations of interest-rate 211u001esmoothing: forward-looking behavior by market participants, measurement error 211u001eassociated with key macroeconomic variables, and uncertainty regarding relevant 211u001estructural parameters.