SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

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

JEL-codes: E31; E43; E52

5 pages, First version: February 1997. Revised: March 4, 1999.

Note: Revised and shortened version of Working Paper No. 159

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Published as

Paul Söderlind, (2001), 'Monetary Policy and the Fisher Effect', Journal of Policy Modeling, vol 23, pages 491-495

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