tailieunhanh - INTEREST RATES AND THE CONDUCT OF MONETARY POLICY

Furthermore, when lenders institute non-interest charges such as fees to compensate for interest rate ceilings, they effectively raise the cost of credit for all successful borrowers. Therefore, while a ceiling may reduce the explicit price of credit (interest rate), it may not result in lower overall costs of borrowing even for those able to obtain loans. Additionally, non-interest charges make it more complicated for customers to comprehend the total cost of borrowing and more difficult to make well-informed credit decisions. While these lending practices and their undesirable consequences may exist in the absence of interest rate ceilings, several studies on the effects of usury ceilings have. | Carnegie-Rochester Conference Series on Public Policy 34 1991 7-30 North-Holland INTEREST RATES AND THE CONDUCT OF MONETARY POLICY MARVIN GOODFRIEND University of Chicago and Federal Reserve Bank of Richmond Abstract The paper describes actual Federal Reserve interest-rate targeting procedures and addresses a number of issues in light of these stylized facts. It reviews the connection between rate smoothing and price level trend-stationarity. It critiques interest-rate targeting as inflation tax smoothing. It argues that stabilization policy implemented by interest-rate targeting may inadvertently induce martingale-like behavior in nominal rates and inflation. The paper explains why central bankers prefere continuity of the short rate and indirect rate targeting. Lastly it surveys empirical evidence of the Fed s influence over short-term interest rates. JEL 311 INTRODUCTION The inflation instability of the 1960s 70s and 80s afforded a chance to observe the extent to which nominal interest rates moved with money growth inflation and expected inflation as Irving Fisher 1930 predicted. Data through 1971 provided evidence that short-term nominal rates moved in large part with changes in expected inflation . Fama 1975 and Nelson and Schwert 1977 . Data from the period thereafter however indicated a more The paper was written while the author was Visiting Associate Professor at the Graduate School of Business University of Chicago. The author would like to thank Tim Cook Mike Dotsey Bob Hetzel and Alan Stockman for helpful discussions. The views expressed here do not necessarily reflect those of the Federal Reserve Bank of Richmond. 0167-2231 91 1991 - Elsevier Science Publishers . All rights reserved important role for real rate variability . Hamilton 1985 . As the inflation rate rose and became more volatile the Fed announced its famous October 1979 move toward reserve targeting. The experience with reserve targeting from October 1979 to the fall of .