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Optimal Monetary Policy under Learning in a New Keynesian Model with Cost Channel and Inflation Inertia
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
Department of Economics, The New School for Social Research, New York, NY.
2012 (English)Report (Other academic)
Abstract [en]

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
Keyword [en]
Commitment; Cost Channel; Determinacy; Discretion; Inflation
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URN: urn:nbn:se:uu:diva-170436OAI: diva2:509121
Available from: 2012-03-13 Created: 2012-03-12 Last updated: 2012-03-13Bibliographically approved

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Bask, Mikael
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