This relatively slow adjustment of the policy rate has been referred to variously as interest-rate smoothing, partial adjustment, and monetary policy inertia. In today’s talk I will use the term gradualism. An alternative to gradual policy adjustment is what an engineer might call a bang-bang solution, or what I will refer to today as the “cold turkey” approach.
This methodology, however, would, in some cases, settle transactions only partially – for example, instead of settling the 1,000 CETES that were intended in a transaction, only 990 would be settled – a practice unheard at the time.