Optimal Monetary Policy with Relative Price Distortions
American Economic Review
vol. 95,
no. 1, March 2005
(pp. 89-109)
Abstract
This paper analyzes optimal monetary policy in a sticky price model with Calvo-type staggered price-setting. In the paper, the optimal monetary policy maximizes the expected utility of a representative household without having to rely on a set of linearly approximated equilibrium conditions, given the distortions associated with the staggered price-setting. It shows that the complete stabilization of the price level is optimal in the absence of initial price dispersion, while optimal inflation targets respond to changes in the level of relative price distortion in the presence of initial price dispersion.Citation
Yun, Tack. 2005. "Optimal Monetary Policy with Relative Price Distortions." American Economic Review, 95 (1): 89-109. DOI: 10.1257/0002828053828653Additional Materials
JEL Classification
- E31 Price Level; Inflation; Deflation
- E52 Monetary Policy