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Monetary Stabilisation with Nominal Asymmetries

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  • Stephen Wright

Abstract

Optimal monetary stabilisation in the standard New Keynesian framework usually assumes a policy loss function from outside the model. In this paper, in contrast, the objective arises directly from the model. Credit constraints and sticky nominal debt contracts imply that monetary stabilisation has asymmetric impacts depending on whether consumers are credit-constrained. The policy problem is to maximise some weighting of the expected utility of the different types of consumer. Features of optimal stabilisation are derived that do not appear to be far out of line with empirical evidence for many countries but that clearly conflict with standard loss function results. Copyright 2004 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 492 (01)
Pages: 196-222

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Handle: RePEc:ecj:econjl:v:114:y:2004:i:492:p:196-222

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Cited by:
  1. Christopher Allsopp & David Vines, 2008. "Fiscal Policy, intercountry adjustment and the real exchange rate within Europe," European Economy - Economic Papers 344, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Graham, Liam & Wright, Stephen, 2005. "Modelling nominal debt contracts and fixed rate debt," Economics Letters, Elsevier, vol. 88(1), pages 67-72, July.
  3. Graham, Liam, 2008. "Consumption habits and labor supply," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 382-395, March.
  4. Piero Ferri & Anna Maria Variato, 2007. "Macro Dynamics in a Model with Uncertainty," Working Papers 0704, University of Bergamo, Department of Economics.

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