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Should the fed smooth interest rates? the case of seasonal monetary policy

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  • Mankiw, N. Gregory
  • Miron, Jeffrey A.

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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Suggested Citation

  • Mankiw, N. Gregory & Miron, Jeffrey A., 1991. "Should the fed smooth interest rates? the case of seasonal monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 34(1), pages 41-69, January.
  • Handle: RePEc:eee:crcspp:v:34:y:1991:i::p:41-69
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    Cited by:

    1. Beaulieu, J Joseph & Miron, Jeffrey A, 1992. "A Cross Country Comparison of Seasonal Cycles and Business Cycles," Economic Journal, Royal Economic Society, vol. 102(413), pages 772-788, July.
    2. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
    3. Brian P. 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.).
    4. Marcelo Veracierto, 2005. "Seasonal monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 49-68.
    5. Smith, R. Todd & van Egteren, Henry, 2005. "Interest rate smoothing and financial stability," Review of Financial Economics, Elsevier, vol. 14(2), pages 147-171.
    6. Liu, Zheng, 2000. "Seasonal cycles, business cycles, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 441-464, October.
    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.
    8. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, January.

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