Should Monetary Policy be Adjusted Frequently?

Sylvester Eijffinger and Harry Huizinga

No 2074, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper considers the optimal frequency of central bank decision making. This frequency affects the central bank’s flexibility to respond to economic shocks in a timely fashion, and also its credibility to maintain low inflation. Generally, the central bank resets monetary policy less often than the arrival of economic news. By adjusting monetary policy less frequently, the central bank achieves lower inflation at the cost of somewhat higher output variability. Evidence for several key countries (Australia, Germany, Japan, the United Kingdom and the United States) shows that the frequency of actual monetary policy changes is indeed positively related to the inflation rate.

Keywords: Inflation; monetary policy frequency (search for similar items in EconPapers)
JEL-codes: D78 E58 (search for similar items in EconPapers)
Date: 1999-02
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Citations: View citations in EconPapers (2)

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