Real Interest Rate, Credit Markets, and Economic Stabilization

Paul Jenkins, Carl E. Walsh

NBER Working Paper No. 1575 (Also Reprint No. r1007)
Issued in March 1988
NBER Program(s):   ME

The role of a real interest rate and a credit aggregate as intermediate monetary policy targets are investigated under the assumption of rational expectations. The analysis expands a standard aggregate model to include a credit market and a market determined interest rate on bank deposits. This allows the implications for output stabilization of real interest rate policy to be examined for a wider variety of shocks than normally considered in the literature, as well as allowing a credit aggregate policy to be studied.

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Published: Jenkins, Paul and Carl E. Walsh. "Real Interest Rate, Credit Markets, and Economic Stabilization," Journal of Macroeconomics, Vol. 9, No. 1, Winter 1987, pp. 95-108.

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