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Optimal monetary policy in an economy with real rigidity

Author

Listed:
  • Daisuke Ida

    (Okayama Shoka University)

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.

Suggested Citation

  • Daisuke Ida, 2012. "Optimal monetary policy in an economy with real rigidity," Economics Bulletin, AccessEcon, vol. 32(3), pages 2281-2292.
    • Handle: RePEc:ebl:ecbull:eb-11-00741
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P220.pdf
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    References listed on IDEAS

    as
    1. Carl Walsh, 2003. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 93(1), pages 265-278, March.
    2. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
    3. Steinsson, Jon, 2003. "Optimal monetary policy in an economy with inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1425-1456, October.
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    More about this item

    Keywords

    Real rigidity; Optimal monetary policy; Commitment; Discretion; Targeting regimes;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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