Price Volatility Under Alternative Monetary Instruments
When private agents have difficulty in interpreting price fluctuacions, they are led into suboptimal allocations of resources. Consequently, price uncertainty is an undesirable feature of a business cycle. However, the way how monetary po1icy is implemented may influence the size of the unpredictabl...
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| Tipo de recurso: | informe técnico |
| Fecha de publicación: | 1993 |
| País: | España |
| Institución: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | español |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/64143 |
| Acceso en línea: | https://hdl.handle.net/20.500.14352/64143 |
| Access Level: | acceso abierto |
| Palabra clave: | Price Volatility Econometría (Economía) 5302 Econometría |
| Sumario: | When private agents have difficulty in interpreting price fluctuacions, they are led into suboptimal allocations of resources. Consequently, price uncertainty is an undesirable feature of a business cycle. However, the way how monetary po1icy is implemented may influence the size of the unpredictable component of price fluctuacions and hence, the welfare of the private agents in the economy. This paper addresses the long standing issue of the optimal choice of a monetary instrument under uncertainty. Ina money-in the-utility function modeL it is shown that this is far from being a purely monetary issue, and also that the optirnal choice of instrument depends on the fiscal policy in effect. If the Govemment collects enough taxes, relative to its expenditures, a nominal interest rate policy produces a more stable price level, the opposite being true when taxes are low, relative to Government expenditures. |
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