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Should The Fed Smooth Interest Rates? The Case of Seasonal Monetary Policy

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Author Info
N. Gregory Mankiw
Jeffrey A. Miron

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Abstract

This paper examines the choice of monetary policy in response to seasonal fluctuations in the economy. It discusses the costs and benefits of smoothing interest rates over the seasons, which has been the Fed's policy since its founding in 1914, and presents simulations suggesting how the economy would behave under the alternative policy of stabilizing the money stock. Finally, it presents evidence that the smoothing of interest rates in 1914 changed the seasonal business cycle.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3388.

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Date of creation: Oct 1991
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Handle: RePEc:nbr:nberwo:3388

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Clark, Truman A, 1986. "Interest Rate Seasonals and the Federal Reserve," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 76-125, February. [Downloadable!] (restricted)
  2. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  3. Robert J. Shiller, 1980. "Can the Fed Control Real Interest Rates?," NBER Chapters, in: Rational Expectations and Economic Policy, pages 117-167 National Bureau of Economic Research, Inc. [Downloadable!]
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  4. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Building Blocks of Market Clearing Business Cycle Models," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 247-302 National Bureau of Economic Research, Inc. [Downloadable!]
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  5. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September. [Downloadable!] (restricted)
  6. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1986-2), pages 285-338. [Downloadable!]
  7. J. Bradford De Long & Lawrence H. Summers, . "How Does Macroeconomic Policy Matter?," J. Bradford De Long's Working Papers _130, University of California at Berkeley, Economics Department. [Downloadable!]
  8. William Poole & Charles Lieberman, 1972. "Improving Monetary Control," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 3(1972-2), pages 293-342. [Downloadable!]
  9. Mankiw, N Gregory & Miron, Jeffrey A & Weil, David N, 1987. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," American Economic Review, American Economic Association, vol. 77(3), pages 358-74, June. [Downloadable!] (restricted)
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  10. Robert B. Barsky & Jeffrey A. Miron, 1989. "The Seasonal Cycle and the Business Cycle," NBER Working Papers 2688, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March. [Downloadable!] (restricted)
  12. Marvin Goodfriend, 1988. "Central banking under the gold standard," Working Paper 88-05, Federal Reserve Bank of Richmond. [Downloadable!]
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  13. Simon Kuznets, 1933. "Seasonal Variations in Industry and Trade," NBER Books, National Bureau of Economic Research, Inc, number kuzn33-1.
  14. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1988-1), pages 1-82. [Downloadable!]
  16. Miron, Jeffrey A, 1986. "Financial Panics, the Seasonality of the Nominal Interest Rate, and theFounding of the Fed," American Economic Review, American Economic Association, vol. 76(1), pages 125-40, March. [Downloadable!] (restricted)
  17. Christina Romer & Jeffrey A. Miron, 1989. "A New Monthly Index of Industrial Production, 1884-1940," NBER Working Papers 3172, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April. [Downloadable!] (restricted)
  19. J. Bradford DeLong & Lawrence H. Summers, 1988. "How Does Macroeconomic Policy Affect Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1988-2), pages 433-494. [Downloadable!]
  20. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," NBER Working Papers 1669, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Laurence M. Ball & David Romer, 1989. "Are Prices Too Sticky?," NBER Working Papers 2171, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April. [Downloadable!] (restricted)
  23. repec:fth:harver:1418 is not listed on IDEAS
  24. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September. [Downloadable!] (restricted)
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  25. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  26. Friedman, Milton, 1982. "Monetary Policy: Theory and Practice," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 98-118, February. [Downloadable!] (restricted)
  27. Kashyap, Anil K, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 245-74, February. [Downloadable!] (restricted)
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  28. Faig, Miquel, 1989. "Seasonal Fluctuations and the Demand for Money," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 847-61, November. [Downloadable!] (restricted)
  29. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jeffrey A. Miron, 1990. "The Economics of Seasonal Cycles," NBER Working Papers 3522, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Philip Lowe & Luci Ellis, 1997. "The Smoothing of Official Interest Rates," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia. [Downloadable!]
  3. Ric Battellino & John Broadbent & Philip Lowe, 1997. "The Implementation of Monetary Policy in Australia," RBA Research Discussion Papers rdp9703, Reserve Bank of Australia. [Downloadable!]
  4. J. Joseph Beaulieu & Jeffrey A. Miron, 1990. "A Cross Country Comparison of Seasonal Cycles and Business Cycles," NBER Working Papers 3459, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Brian Sack, 1998. "Uncertainty, learning, and gradual monetary policy," Finance and Economics Discussion Series 1998-34, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Adam Cagliarini & Guy Debelle, 2000. "The Effect of Uncertainty on Monetary Policy: How Good are the Brakes?," Working Papers Central Bank of Chile 74, Central Bank of Chile. [Downloadable!]
    Other versions:
  7. Michael F. Bryan & Stephen G. Cecchetti, 1995. "The seasonality of consumer prices," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 12-23. [Downloadable!]
    Other versions:
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