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Sectoral inflation persistence and optimal monetary policy

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  • Ida, Daisuke

Abstract

This paper examines optimal monetary policy in a new Keynesian model with sectoral inflation persistence. It focuses on the welfare differential between timeless perspective (TP) and a purely discretionary monetary policy. Sectoral inflation persistence renders the central bank’s optimization problem more complicated under both cases of constant elasticity of substitution consumption index and generalized rule-of-thumb price setting. We find that there are substantial gains from employing a TP policy. This paper addresses the fact that this gain is robust with any changes in key structural parameters.

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  • Ida, Daisuke, 2020. "Sectoral inflation persistence and optimal monetary policy," Journal of Macroeconomics, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:jmacro:v:65:y:2020:i:c:s0164070420301415
    DOI: 10.1016/j.jmacro.2020.103215
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    More about this item

    Keywords

    Optimal monetary policy; Sectoral inflation persistence; Timeless perspective; Discretion; New Keynesian model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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