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Nominal rigidities in both the intermediate goods sector and the final goods sector and equilibrium determinacy

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  • Kim, Myunghyun

Abstract

This paper considers a model with nominal rigidities not only in the intermediate goods sector, but also in the final goods sector. Naturally, there are two types of price inflation in the model: final and intermediate goods price inflation. From the perspective of equilibrium determinacy, I use the model to discuss which inflation rate monetary policy should respond to. I show that a modified generalized Taylor principle holds in the model. If the central bank responds to price inflation of either final or intermediate goods, or any convex combination of the two, and if the response of the nominal interest rate is greater than the increase in the inflation rate in the long run, then equilibrium determinacy is ensured. I also find that the determinacy region of the model is wider than that of a conventional model with price rigidity only in the intermediate goods sector.

Suggested Citation

  • Kim, Myunghyun, 2026. "Nominal rigidities in both the intermediate goods sector and the final goods sector and equilibrium determinacy," Journal of Mathematical Economics, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:mateco:v:122:y:2026:i:c:s0304406825001107
    DOI: 10.1016/j.jmateco.2025.103193
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    References listed on IDEAS

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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