Discussion Paper Details

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Title: Should Monetary Policy be Adjusted Frequently?

Author(s): Sylvester C W Eijffinger and Harry Huizinga

Publication Date: February 1999

Keyword(s): Inflation and monetary policy frequency

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Eijffinger, S and Huizinga, H. 1999. 'Should Monetary Policy be Adjusted Frequently?'. London, Centre for Economic Policy Research.