Optimal Monetary Policy under Learning in a New Keynesian Model with Cost Channel and Inflation Inertia
2012 (English)Report (Other academic)
We show that a so-called expectations-based optimal monetary policy rule has desirable properties in a standard New Keynesian model augmented with a cost channel and inflation rate expectations that are partly backward-looking. In particular, optimal monetary policy under commitment is associated with a determinate rational expectations equilibrium that is stable under least squares learning for all parameter constellations considered, whereas, under discretion in policy-making, the central bank has to be sufficiently inflation rate averse for the rational expectations equilibrium to have the same properties.
Place, publisher, year, edition, pages
Uppsala: Department of Economics, Uppsala University , 2012. , 24 p.
Working paper / Department of Economics, Uppsala University (Online), ISSN 1653-6975 ; 2012:7
Commitment; Cost Channel; Determinacy; Discretion; Inflation
Research subject Economics
IdentifiersURN: urn:nbn:se:uu:diva-170436OAI: oai:DiVA.org:uu-170436DiVA: diva2:509121