No. 1275 - Monetary policy gradualism and the nonlinear effects of monetary shocks

by Luca Metelli, Filippo Natoli and Luca Rossi
April 2020
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Monetary policy in the US has often followed a gradual approach, with the Federal Reserve changing the policy rate through a series of small adjustments rather than one-off larger hikes or cuts. This work conducts an empirical study of the macroeconomic and financial effects of such strategy.

A gradual approach to the conduct of monetary policy leads to stronger responses in variables such as long-term interest rates and inflation to unexpected changes in the policy rate. One possible explanation for this is that the gradual approach might be perceived by investors as a further signal about the future evolution of monetary policy.

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  1. 27 April 2020
    No. 1275 - Monetary policy gradualism and the nonlinear effects of monetary shocks
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