Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2015:11: Seasonality in the Frequency of Price Change and Optimal Monetary Policy

Johan Söderberg ()
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Johan Söderberg: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: The implications for optimal monetary policy of introducing seasonality in the frequency of price change in the baseline New Keynesian model are studied. In the resulting model, both the parameters of the Phillips curve and the weight on inflation stabilization in the welfare criterion vary seasonally. I show that for a plausible calibration, even a modest degree of seasonality in the frequency of price change gives rise to large seasonal differences in the equilibrium responses of the output gap and inflation to cost-push shocks. The effects on welfare, however, are small under both discretionary and commitment policy.

Keywords: Price Setting; Staggering; Seasonality; Optimal Monetary Policy

JEL-codes: E31; E32

27 pages, December 18, 2015

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