Price smoothing policies: a welfare analysis

Canova, Fabio (1992) Price smoothing policies: a welfare analysis. Journal of Monetary Economics, 30, (2), 255-275. (doi:10.1016/0304-3932(92)90062-7).


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In post-WWII experience U.S. monetary authorities have attempted to eliminate seasonal fluctuations in prices and nominal interest rates. Developments in financial markets and recently discovered empirical regularities regarding the seasonal cycle seem to make these activities questionable. Using a money-in-the-utility-function model this paper analyzes the welfare properties of price and interest rate smoothing policies and the sense in which the distinction between seasonal and cyclical fluctuations is relevant. It is shown that smoothing policies are welfare improving, but not optimal, and that the origin of the shocks, not the persistence of the fluctuations, is relevant in formulating policies.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1016/0304-3932(92)90062-7
ISSNs: 0304-3932 (print)
Related URLs:
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Divisions : University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 32940
Accepted Date and Publication Date:
November 1992Published
Date Deposited: 11 Dec 2007
Last Modified: 06 Aug 2015 02:30

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