Pursuing stable rates may create instability, Norges Bank paper finds

Norges Bank HQ, Oslo
Central bankers' fears may become self-fulfilling, Norges Bank researchers warn. Photo: Norges Bank
Photo: Espen Schive

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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