On the Optimality of Interest Rate Smoothing / Sergio Rebelo, Danyang Xie.

Format:

Book

Author/Creator:

Rebelo, Sergio.

Contributor:

National Bureau of Economic Research.

Xie, Danyang.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5947.

NBER working paper series no. w5947

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

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.

Notes:

Print version record

February 1997.