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Seasonality And Monetary Policy

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  • GOMIS-PORQUERAS, PERE
  • SMITH, BRUCE D.

Abstract

Seasonal fluctuations are as large as cyclical fluctuations. Monetary policy in the United States has dealt with seasonality by smoothing nominal rates of interest. The original motivation for this was that seasonality in nominal interest rates put recurring strain on the banking system. We build a model of monetary policy in the presence of seasonality that puts financial market conditions in the foreground. Our findings are as follows. Insulating nominal rates of interest or rates of inflation from seasonal variation are the basis for a formula for generating indeterminacy of equilibria and excess volatility. Preventing seasonality in the rate of monetary growth does not suffer from this problem. Moreover, under any method for conducting monetary policy, the setting of the target value of the monetary instrument will affect the degree of seasonal variability in most endogenous variables. This is a new channel by which monetary policy can have real effects. The case for eliminating seasonality in nominal rates of interest is strongest when seasonal impulses derive from shifts in money demand. It is weakest when seasonal impulses derive from the real sector.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 7 (2003)
Issue (Month): 04 (September)
Pages: 477-502

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Handle: RePEc:cup:macdyn:v:7:y:2003:i:04:p:477-502_02

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Cited by:
  1. Stephen Williamson, 2004. "Search, Limited Participation, and Monetary Policy," 2004 Meeting Papers 214, Society for Economic Dynamics.
  2. Tarishi Matsuoka, 2011. "Monetary Policy and Banking Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1109-1129, 09.
  3. repec:cuf:journl:y:2013:v:14:i:3:paal is not listed on IDEAS
  4. Bhattacharya, Joydeep & Singh, Rajesh, 2008. "Optimal choice of monetary policy instruments in an economy with real and liquidity shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1273-1311, April.
  5. Scott Freeman, 2002. "Payments and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 602-617, July.
  6. Bhattacharya, Joydeep & Singh, Rajesh, 2010. "Optimal monetary rules under persistent shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(7), pages 1277-1294, July.
  7. Carlos Gustavo Machicado, 2007. "Growth and Banking Structure in a Partially Dollarized Economy," Development Research Working Paper Series 02/2007, Institute for Advanced Development Studies.
  8. Pere Gomis-Porqueras & Bruce Smith, 2006. "The seasonality of banking failures during the late National Banking Era," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 296-319, February.

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