Advanced Search
MyIDEAS: Login

Optimal Monetary Policy under Sticky Prices and Sticky Information

Contents:

Author Info

  • Tomiyuki Kitamura

    (The Ohio State University and Bank of Japan)

Registered author(s):

    Abstract

    A wrong model can lead to a wrong conclusion. The failure to capture inflation dynamics has made the standard New Keynesian framework of monetary policy analysis prone to such a critique. In this paper, we investigate optimal monetary policy using a model that can capture the observed inflation persistence. The model, which we call the dual stickiness model, integrates sticky prices and sticky information. Two main results characterize the optimal policy. First, in the presence of cost-push shocks, a simple elastic price target rule is optimal, regardless of the degree of each stickiness, and regardless of whether the specification of stickiness is fixed-duration or random-duration. Second, the dynamics under the optimal policy in the model are more persistent than those in the models with either of the two types of stickiness. We also evaluate how important it is for the central bank to distinguish the dual stickiness model from an existing alternative, the hybrid New Keynesian model. The results show that, in the presence of error in controlling the output gap, the welfare loss can be huge when the central bank fails to recognize the dual stickiness model as the true model of the economy.

    Download Info

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 1077.

    as in new window
    Length:
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:red:sed008:1077

    Contact details of provider:
    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Email:
    Web page: http://www.EconomicDynamics.org/society.htm
    More information through EDIRC

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:red:sed008:1077. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

    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.