EconPapers    
Economics at your fingertips  
 

Optimal Interest-Rate Smoothing

Michael Woodford

The Review of Economic Studies, 2003, vol. 70, issue 4, 861-886

Abstract: This paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions. It shows, in the context of a simple model of optimizing private-sector behaviour, that assignment of an interest-rate smoothing objective to the central bank may be desirable, even when reduction of the magnitude of interest-rate changes is not a social objective in itself. This is because a response of policy to "irrelevant" lagged variables may be desirable owing to the way it steers private-sector expectations of future policy. Copyright 2003, Wiley-Blackwell.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (281)

Downloads: (external link)
http://hdl.handle.net/10.1111/1467-937X.00270 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:70:y:2003:i:4:p:861-886

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2024-03-31
Handle: RePEc:oup:restud:v:70:y:2003:i:4:p:861-886