Scandinavian Working Papers in Economics
Working Paper Series,
Uppsala University, Department of Economics
No 2012:7: Optimal Monetary Policy under Learning in a New Keynesian Model with Cost Channel and Inflation Inertia
Mikael Bask () and Christian R Proaño
Additional contact information
Mikael Bask: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Christian R Proaño: Department of Economics, Postal: The New School for Social Research, New York, NY
Abstract: We show that a so-called expectations-based optimal monetary policy rule has desirable properties in a standard New Keynesian model augmented with a cost channel and inflation rate expectations that are partly backward-looking. In particular, optimal monetary policy under commitment is associated with a determinate rational expectations equilibrium that is stable under least squares learning for all parameter constellations considered, whereas, under discretion in policy-making, the central bank has to be sufficiently inflation rate averse for the rational expectations equilibrium to have the same properties.
Keywords: Commitment; Cost Channel; Determinacy; Discretion; Inflation Inertia; Least Squares Learning; Optimal Monetary Policy
25 pages, February 29, 2012
Full text files
FULLTEXT01.pdf
Questions (including download problems) about the papers in this series should be directed to Ulrika Öjdeby ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2024-02-05 17:14:00.