Investment and Interest Rate Policy

Investment and interest rate policy: a discrete time analysis

Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank...

Global Knowledge, Local Solutions: Interest Rate and Monetary Policy

Inventory Investment and the Real Interest Rate

The relationship between inventory investment and the real interest rate has been difficult to assess empirically. Recent work has proposed a linear-quadratic inventory model with time-varying discount factor to identify the effects of real interest rate on inventory investment. The authors show that this framework does not separately identify the effects of real interest rate on inventory inve...

On Interest Rate Policy and Asset Bubbles

In a provocative paper, Gali (2014), showed that a policymaker who raises interest rates because of concerns about a bubble will paradoxically make the bubble bigger. In this paper, we argue Gali’s framework abstracts from the possibility that a policymaker who raises rates might crowd out resources that would have otherwise been spent on the bubble. We show that when we modify Gali’s model to ...

Monetary Policy Committees and Interest Rate Smoothing

We extend the New Keynesian Monetary Policy literature relaxing the assumption that the decisions are taken by a single policymaker, considering instead that monetary policy decisions are taken collectively in a committee. We introduce a Monetary Policy Committee (MPC), whose members have different preferences between output and inflation variability and have to vote on the level of the interes...