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On the optimality of eliminating seasonality in nominal interest rates

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Author Info

  • Satyajit Chatterjee

Abstract

Optimal monetary policy for an economy with seasonal fluctuations and a cash-in-advance requirement on the purchase of consumption goods is studied. It is shown that the short delay in the availability of newly acquired funds for consumption purchases (the hallmark of cash-in-advance models) typically makes the seasonal steady state inefficient. It is also shown that monetary policy can overcome this inefficiency by keeping the nominal interest rate constant over the seasons. An analytical model is also presented to explore the effects of seasonal smoothing of nominal interest rates on the seasonal amplitude of other closely related variables.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 97-2.

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Date of creation: 1997
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Handle: RePEc:fip:fedpwp:97-2

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Related research

Keywords: Interest rates ; Seasonal variations (Economics);

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Cited by:
  1. 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.
  2. Stephen Williamson, 2004. "Search, Limited Participation, and Monetary Policy," 2004 Meeting Papers 214, Society for Economic Dynamics.

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