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In particular, two exchange rate situations have been analyzed: (i) flexible exchange rates in which the monetary authority follows an extended IRR that reacts to deviations of inflation, output, and the exchange rate (De Paoli, 2009) or (ii) fixed exchange rates in which the central bank pegs the exchange rate to the currency of another country and commits to defending such a peg by losing its ability to control the nominal interest rate (Schmitt-Grohe and Uribe, 2011).
In fact, Japanese savers have been benefiting from this phenomenon for more than a decade, reaping higher real returns than their counterparts in the US, even though Japan's near-zero nominal interest rates are much lower than America's.
Although still in control of its monetary policy throughout most of the 1990s, the central bank of Ireland was able to target a nominal interest rate aligned with what the Taylor Rule would suggest was prudent (Eleftheriou, Gerdesmeier, and Roffia 2006).
This reflects the difference between real and nominal interest rates.
The amount of money that individuals and business hold varies with three macroeconomic variables: the nominal interest rate (i), real output (Y), and the price level (P).
Similarly, positive relation exists between nominal interest rate and output gap in boom and negative relation is found in recession.
Hua acknowledged however that high nominal interest rates, making local financing costly, is a deterrent for companies.
He said that the Taylor-type policy rule partly depends on how aggressively the central bank reacts to inflation and to the output gap (which, in the model, is not the output gap of common parlance) when setting the nominal interest rate.
He demanded the central government to immediately come out with a categorical policy on weavers to create a sense of confidence among them and give them the top priority in matters like providing loans, either interest free or on nominal interest rate and providing social security net.
Our results indicate that the monetary authority should raise its nominal interest rate target following a disaster.
4 percent per year Under the Ramsey optimal monetary policy, the standard deviation of the nominal interest rate is only 0.
The analysis introduces financial intermediaries into the flexible-price monetary model of Carlstrom and Fuerst (2001) (henceforth, CF), where cash-in-advance timing allows the nominal interest rate to be interpreted as a tax (i.