Pursuing stable rates may create instability, Norges Bank paper finds
Central banks may struggle to credibly commit to stable rates
There are many reasons why central bankers may wish to keep rates at or close to "normal" levels, but there are "pitfalls" in such an approach, warns research published by Norges Bank on May 25.
When preferences for a stable interest rate become self-defeating, a working paper by Ragna Alstadheim and Øistein Røisland, says central banks may wish to keep their interest rate away from the zero lower bound (ZLB), or may wish to avoid the financial instability that can result from moving rates far
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