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Creator: Adão, Bernardino, Correia, Isabel, and Teles, Pedro Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 680 Abstract:
We show that short and long nominal interest rates are independent monetary policy instruments. The pegging of both helps solving the problem of multiplicity that arises when only short rates are used as the instrument of policy. A peg of the nominal returns on assets of different maturities is equivalent to a peg of state-contingent interest rates. These are the rates that should be targeted in order to implement unique equilibria. At the zero bound, while it is still possible to target state-contingent interest rates, that is no longer equivalent to the target of the term structure.
Parola chiave: Sticky prices, Maturities, Long rates, Monetary policy instruments, Term structure, Short rates, Monetary policy, and Multiplicity of equilibria Soggetto: E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General, E40 - Money and Interest Rates: General, and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)