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Optimal monetary policy in an economy with real rigidity

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  • Daisuke Ida

    ()
    (Okayama Shoka University)

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    Abstract

    Several studies address the importance of the effect of real rigidity on macroeconomic variables. The presence of real rigidity might change the property of optimal monetary policy suggested by the canonical new Keynesian model. We examine optimal monetary policy in an economy with real rigidity. According to our simulation results, the welfare gain associated with a commitment policy declines as the degree of real rigidity increases. This paper also finds that price level targeting is an effective policy regime when real rigidity is present.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P220.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 3 ()
    Pages: 2281-2292

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    Handle: RePEc:ebl:ecbull:eb-11-00741

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    Related research

    Keywords: Real rigidity; Optimal monetary policy; Commitment; Discretion; Targeting regimes;

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    1. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, The MIT Press, edition 3, volume 1, number 0262013770, December.
    2. Steinsson, Jon, 2003. "Optimal monetary policy in an economy with inflation persistence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(7), pages 1425-1456, October.
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