DP1610 Monetary Policy and the Fisher Effect
|Publication Date:||March 1997|
|Keyword(s):||Fisher Effect, Inflation Expectations, Interest Rates, Kalman Filter Estimation, Monetary Policy|
|JEL(s):||E31, E43, E52|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1610|
Historical estimates of the Fisher effect and the informational content in the yield curve may not be relevant after a change in monetary policy. This paper uses a small dynamic rational expectations model with staggered price setting to study how central bank preferences (and thereby monetary policy) affect the relation between nominal interest rates, inflation expectations, and real interest rates. The benchmark parameters, including the Federal Reserve Bank?s loss function parameters, are estimated by maximum likelihood on quarterly US data. The policy experiments include stronger inflation targeting, more active monetary policy, and a change in commitment technology.