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Heterogeneity in Inflation Persistence and Monetary Policy in a Monetary Union

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  • Séverine Menguy
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    In the context of a new Keynesian macroeconomic model, this paper studies the monetary policy that should be conducted by the common central bank of a monetary union. In the event of inflationary supply shocks, the optimal monetary policy should be all the more contractionary as the inflation inertia increases, in order to obtain the same average price level. Moreover, the increase in interest rates should be all the more accentuated as the shock affects a country which has a higher inflation inertia, and as the heterogeneity in inflation persistence between the countries of the monetary union increases.

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    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/81318/1/ARTICLE%20MENGUY%20OK.pdf
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    Article provided by ULB -- Universite Libre de Bruxelles in its journal Brussels economic review.

    Volume (Year): 52 (2009)
    Issue (Month): 2 ()
    Pages: 121-141

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    Handle: RePEc:bxr:bxrceb:2013/81318
    Contact details of provider: Web page: http://difusion.ulb.ac.be

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