On the optimality of interest rate smoothing
This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal. We consider both deterministic and stochastic models. In the stochastic case we obtain two results of independent interest: (i) we study what is, to our knowledge, the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time; and (ii) we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem. We also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium, focusing on the particular example of an economy with externalities.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992.
"On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(1), pages 43-68, January.
- Timothy J. Kehoe & David K. Levine & Paul M. Romer, 1990. "On characterizing equilibria of economies with externalities and taxes as solutions to optimization problems," Working Papers 436, Federal Reserve Bank of Minneapolis.
- Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
- Correia, Isabel & Teles, Pedro, 1996.
"Is the Friedman Rule Optimal When Money is an Intermediate Good?,"
CEPR Discussion Papers
1287, C.E.P.R. Discussion Papers.
- Correia, Isabel & Teles, Pedro, 1996. "Is the Friedman rule optimal when money is an intermediate good?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 223-244, October.
- Jonathan Eaton, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 435-445.
- Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
- Abel, Andrew B., 1985.
"Dynamic behavior of capital accumulation in a cash-in-advance model,"
Journal of Monetary Economics,
Elsevier, vol. 16(1), pages 55-71, July.
- Andrew B. Abel, 1985. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," NBER Working Papers 1549, National Bureau of Economic Research, Inc.
- Marvin Goodfriend, 1987.
"Interest rate smoothing and price level trend-stationarity,"
87-03, Federal Reserve Bank of Richmond.
- Goodfriend, Marvin, 1987. "Interest rate smoothing and price level trend-stationarity," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 335-348, May.
- Marvin Goodfriend, 1986. "Interest rate smoothing and price level trend-stationarity," Working Paper 86-04, Federal Reserve Bank of Richmond.
- Xie, Danyang, 1991. "Increasing Returns and Increasing Rates of Growth," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 429-435, April.
- Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
- Charles T. Carlstrom & Timothy S. Fuerst, 1995.
"Interest rate rules vs. money growth rules: a welfare comparison in a cash-in-advance economy,"
9504, Federal Reserve Bank of Cleveland.
- Carlstrom, Charles T. & Fuerst, Timothy S., 1995. "Interest rate rules vs. money growth rules a welfare comparison in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 247-267, November.
- Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-777, October.
- Wang, Ping & Yip, Chong K, 1992.
"Alternative Approaches to Money and Growth,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 24(4), pages 553-562, November.
- Chang, Fwu-Ranq, 1988. "The Inverse Optimal Problem: A Dynamic Programming Approach," Econometrica, Econometric Society, vol. 56(1), pages 147-172, January.
- Cohen, Daniel, 1985. "Inflation, wealth and interest rates in an intertemporal optimizing model," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 73-85, July.
When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:43:y:1999:i:2:p:263-282. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.