Download or read book Optimal Monetary Policy with State dependent Pricing written by Anton Nakov and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies optimal monetary policy from the timeless perspective in a general model of state-dependent pricing. Firms are modeled as monopolistic competitors subject to idiosyncratic menu cost shocks. We find that, under certain conditions, a policy of zero inflation is optimal both in the long run and in response to aggregate shocks. Key to this finding is an "envelope" property: at zero inflation, a marginal increase in the rate of inflation has no effect on firms' profits and hence on their probability of repricing. We offer an analytic solution that does not require local approximation or eØ ciency of the steady state. Under more general conditions, we show numerically that the optimal commitment policy remains very close to strict inflation targeting.

Download or read book State dependent Pricing and Optimal Monetary Policy written by and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Phillips Curve Instability and Optimal Monetary Policy written by Troy Davig and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the implications for optimal discretionary monetary policy if the slope of the Phillips curve changes. The paper first derives a 'switching' Phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment. Two states exists, a state with a high cost of price adjustment that generates a 'flat' Phillips curve and a low-cost state that generates a relatively 'steep' curve. The second aspect of the paper constructs a utility-based welfare criterion. A novel feature of this criterion is that it has a relative weight on output gap deviations that is state dependent, so it changes with the cost of price adjustment. Optimal monetary policy is computed subject to the switching-Phillips curve under both ad-hoc and utility-based welfare criteria. The utility-based criterion instructs monetary policy to disregard the slope of the Phillips curve and keep its systematic actions constant across different states. This stands in contrast to the prescription coming under the ad-hoc criterion, which advises monetary policy to change its systematic behavior according to the slope of the Phillips curve.

Download or read book NBER Macroeconomics Annual 2005 written by Kenneth S. Rogoff and published by MIT Press. This book was released on 2006-04 with total page 479 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 20th NBER Macroeconomics Annual, covering questions at the cutting edge of macroeconomics that are central to current policy debates.

Download or read book Designing a Simple Loss Function for Central Banks written by Davide Debortoli and published by International Monetary Fund. This book was released on 2017-07-21 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.

Download or read book State Dependent Monetary Policy written by Francesco Lippi and published by . This book was released on 2014 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the optimal anticipated monetary policy in a flexible-price economy featuring heterogenous agents and incomplete markets, which give rise to a business cycle. In this setting money policy has distributional effects that depend on the state of the cycle. We parsimoniously characterize the dynamics of the economy and study the optimal regulation of the money supply as a function of the state. The optimal policy prescribes monetary expansions in recessions, when insurance is most needed by cash- poor unproductive agents. To minimize the inflationary effect of these expansions the policy prescribes monetary contractions in good times. Although the optimal money growth rate varies greatly through the business cycle, this policy "echoes" Friedman's principle in the sense that the expected real return of money approaches the rate of time preference.

Download or read book State Dependent Pricing and Business Cycle Asymmetries written by Michael B. Devereux and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a tractable, dynamic general equilibrium model of state-dependent pricing and study the response of output and prices to monetary policy shocks. We find important nonlinearities in these responses. For empirically relevant shocks, this generates substantially different predictions from time-dependent pricing. We also find a distinct asymmetry with state-dependent pricing: Prices respond more to positive shocks than they do to negative shocks. This is due to a strategic linkage between firms in the incentive for price adjustment. Our state-dependent model can account for business cycle asymmetries in output of the magnitude found in empirical studies.

Download or read book Handbook of Monetary Economics 3A written by and published by Elsevier. This book was released on 2010-12-08 with total page 754 pages. Available in PDF, EPUB and Kindle. Book excerpt: What tools are available for setting and analyzing monetary policy? World-renowned contributors examine recent evidence on subjects as varied as price-setting, inflation persistence, the private sector's formation of inflation expectations, and the monetary policy transmission mechanism. Stopping short of advocating conclusions about the ideal conduct of policy, the authors focus instead on analytical methods and the changing interactions among the ingredients and properties that inform monetary models. The influences between economic performance and monetary policy regimes can be both grand and muted, and this volume clarifies the present state of this continually evolving relationship. Explores the models and practices used in formulating and transmitting monetary policies Raises new questions about the volume, price, and availability of credit in the 2007-2010 downturn Questions fiscal-monetary connnections and encourages new thinking about the business cycle itself Observes changes in the formulation of monetary policies over the last 25 years

Download or read book Optimal Monetary and Fiscal Policy written by Pierpaolo Benigno and published by . This book was released on 2003 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book State dependent Pricing Under Infrequent Information written by Marco Antonio Bonomo and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book State dependent Pricing Turns Money Into a Two edged Sword written by Vo Phuong Mai Le and published by . This book was released on 2020 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Strong evidence exists that price/wage durations are dependent on the state of the economy, especially inflation. We embed this dependence in a macro model of the US that otherwise does well in matching the economy's behaviour in the last three decades; it now also matches it over the whole post-war period. This finding implies a major new role for monetary policy: besides controlling inflation it now determines the economy's price stickiness. We find that, when backed by fiscal policy in preventing a ZLB, by targeting nominal GDP monetary policy can achieve high price stability and avoid large cyclical output fluctuations.

Download or read book A Linear Quadratic Approach to Optimal Monetary Policy with Unemployment and Sticky Prices written by Mehdi Raissi and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Policy Under Dollar Pricing written by Konstantin Egorov and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical evidence shows that most international prices are sticky in dollars. This paper studies the optimal policy implications of this fact in the context of an open economy model, allowing for an arbitrary structure of asset markets, general preferences and technologies, time-or state-dependent price setting, a rich set of shocks, and endogenous currency choice. We show that although monetary policy is less efficient and cannot implement the flexible-price allocation, inflation targeting remains robustly optimal in non-U.S. economies. The implementation of this non-cooperative policy results in a "global monetary cycle" with other countries partially pegging their exchange rates to the dollar and importing the monetary stance of the U.S. In spite of the aggregate demand externality, capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. The optimal U.S. policy, on the other hand, deviates from inflation targeting to take advantage of its effects on global product and asset markets, generating negative spillovers on the rest of the world. International cooperation benefits other countries by improving global demand for dollar-invoiced goods, but may be hard to sustain because it is not in the self-interest of the U.S. At the same time, countries can still gain from local forms of policy coordination - such as forming a currency union like the Eurozone.

Download or read book Optimal Monetary Policy with Imperfect Common Knowledge written by Klaus Adam and published by . This book was released on 2004 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Monetary Policy Endogenous Sticky Prices and Multiple Equilibria written by Levon Barseghyan and published by . This book was released on 2007 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze optimal discretionary monetary policy in an endogenous sticky prices model. Similar models with exogenous sticky prices can deliver multiple equilibria. This is a necessary condition for the occurrence of expectation traps (when private agents' expectations determine the equilibrium level of inflation). In our model, sticky price firms are allowed to switch to flexible pricing by paying a random cost. For plausible parametrizations, our model has a unique low-inflation equilibrium. With endogenous sticky prices, the monetary authority does not validate high-inflation expectations and deviates to the Friedman rule.

Download or read book Sticky Prices in the Euro Area written by and published by . This book was released on 2005 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Monetary Policy in a Model of Overlapping Price Contracts written by Jeffrey C. Fuhrer and published by . This book was released on 1994 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: