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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 159:
Monetary Policy and the Fisher Effect

Paul Söderlind ()

Abstract: Historical estimates of the informational content in the yield curve may not be relevant after a change in monetary policy. This study uses a small dynamic rational expectations model with staggered price setting to study how monetary policy affects the relation between nominal interest rates, inflation expectations, and real interest rates. The benchmark parameters, including the Fed's loss function parameters, are estimated by maximum likelihood on quarterly U.S. data. The policy experiments include stronger inflation targeting and more active monetary policy.

Keywords: Optimal monetary policy; inflation expectations; forward interest rates; Kalman filter estimation; (follow links to similar papers)

JEL-Codes: E31; E43; E52; (follow links to similar papers)

5 pages, February 1997, Revised March 4, 1999

Revised and shortened version of Working Paper No. 159

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This paper is published as:
Söderlind, Paul, (2001), 'Monetary Policy and the Fisher Effect', Journal of Policy Modeling, Vol. 23, pages 491-495



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