Monetary Policy and Core Inflation

42 Pages Posted: 17 Dec 2007

Multiple version iconThere are 2 versions of this paper

Date Written: December 2007

Abstract

This paper studies optimal monetary policy responses in an economy featuring sectorial heterogeneity in the frequency of price adjustments. It shows that a central bank facing heterogeneous nominal rigidities is more likely to behave less aggressively than in a fully sticky economy. Hence, the supposedly excessive caution in the conduct of monetary policy shown by central banks could be partly explained by the existence of a relevant sectorial dispersion in the frequency of price adjustments.

Keywords: Core inflation, elasticity of intertemporal substitution, heterogeneity, nominal rigidity

JEL Classification: E43, E52, E58

Suggested Citation

Lenza, Michele, Monetary Policy and Core Inflation (December 2007). ECB Working Paper No. 837. Available at SSRN: https://ssrn.com/abstract=1032548

Michele Lenza (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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