The Enigma of the Ineffectiveness of Interest Rate Policy in the 1990s
Policymakers attempt to achieve a certain inflation goal by using their control over interest rates to restrain the total demand for goods and services in the economy. (Arestis and Sawyer, 2003a, p. 9)
Monetary policy can be seen as aggregate demand policy in that the interest rate set by the central bank is seen to influence aggregate demand, which, in turn, is thought to influence the rate of inflation. (Arestis and Sawyer, 2003a, p. 17) Taylor (2000) reflects the consensus view, when he reports his finding that even if there are alternative views of the monetary transmission mechanism, ‘the same simple monetary policy rule — one in which the central bank’s target short-term interest rate reacts to inflation and to real output — would perform well’ (p. 60).
KeywordsIncome Stein Tral Volatility Stim
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- 5.Okina (1999) argued that already at that time monetary policy was ‘historically unprecedented’.Google Scholar
- 37.Bernanke and Blinder (1992) found that banks first responded by shifting securities, rather than bank loans (which are longer-term contracts), but after a lag (of two years) also reduce bank loans.Google Scholar