Optimal Monetary Policy, Endogenous Sticky Prices, and Multiple Equilibria
AbstractWe 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 InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): 7 (2007)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.degruyter.com
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Siu, Henry E., 2008.
"Time consistent monetary policy with endogenous price rigidity,"
Journal of Economic Theory,
Elsevier, vol. 138(1), pages 184-210, January.
- Henry E. Siu, 2007. "Time consistent monetary policy with endogenous price rigidity," Staff Report 390, Federal Reserve Bank of Minneapolis.
- Henry Siu, 2005. "Time Consistent Monetary Policy with Endogenous Price Rigidity," 2005 Meeting Papers 821, Society for Economic Dynamics.
- Siu, Henry, 2006. "Time consistent monetary policy with endogenous price rigidity," UBC Departmental Archives siu-06-06-15-02-39-39, UBC Department of Economics, revised 20 Jun 2006.
- David Arseneau, 2012.
"Expectation traps in a new Keynesian open economy model,"
Springer, vol. 49(1), pages 81-112, January.
- David M. Arseneau, 2004. "Expectation traps in a New Keynesian open economy model," Finance and Economics Discussion Series 2004-45, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.