There is a stronger transmission mechanism for monetary policy when markets believe a central bank has adopted a “gradualist approach”, argues a working paper published by the Bank of Italy.
In Monetary policy gradualism and the non-linear effects of monetary shocks, Luca Metelli, Filippo Natoli and Luca Rossi look at the US Federal Reserve’s approach monetary policy from 1990 to 2006. This, they say, “has often followed a gradual approach by changing policy rates through multiple small
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