Premium
When Preferences for a Stable Interest Rate Become Self‐Defeating
Author(s) -
ALSTADHEIM RAGNA,
RØISLAND ØISTEIN
Publication year - 2017
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12383
Subject(s) - interest rate , economics , inflation (cosmology) , monetary policy , function (biology) , self interest , term (time) , monetary economics , real interest rate , stability (learning theory) , computer science , psychology , social psychology , physics , quantum mechanics , evolutionary biology , theoretical physics , biology , machine learning
Monetary policymakers often seem to have preferences for a stable interest rate, in addition to stable inflation and output. In this paper, we investigate the implications of having an interest rate level term in the loss function when the policymaker lacks commitment technology. We show that such preferences may become self‐defeating, in the sense that they generate a less stable interest rate than in the case without preferences for interest rate stability.