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Term Structure Rules for Monetary Policy

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  • Mariano Kulish

    (Reserve Bank of Australia)

Abstract

This paper studies two types of interest rate rules that involve long-term nominal interest rates in the context of a New Keynesian model. The first type considers the possibility of adding longer-term rates to the list of variables the central bank reacts to in setting its short-term rate. The second type considers Taylor-type rules that are expressed in terms of interest rates of different maturities, which are operationally equivalent to more complex rules expressed in terms of the short-term rate. It is shown that both types of rules can give rise to a unique rational expectations equilibrium in large regions of the policy-parameter space. The normative evaluation shows that under certain preferences of the monetary authority, policy rules of the second type produce better results than the standard Taylor-type rule.

Suggested Citation

  • Mariano Kulish, 2006. "Term Structure Rules for Monetary Policy," RBA Research Discussion Papers rdp2006-02, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2006-02
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    File URL: https://www.rba.gov.au/publications/rdp/2006/pdf/rdp2006-02.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    term structure of interest rates; monetary policy rules;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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