A Primer on Optimal Monetary Policy with Staggered Price-Setting

FRB Richmond Economic Quarterly, Vol. 87, No. 4, Fall 2001, pp. 27-52

26 Pages Posted: 30 Nov 2012

Date Written: 2001

Abstract

Three notions of optimal monetary policy are applied to a model in which firms set their prices for multiple periods. The best steady state inflation rate is slightly positive, but the policy that maximizes present discounted welfare leads in the long run to zero inflation. If commitment is not feasible, a benevolent monetary authority will choose relatively high inflation.

Suggested Citation

Wolman, Alexander L., A Primer on Optimal Monetary Policy with Staggered Price-Setting (2001). FRB Richmond Economic Quarterly, Vol. 87, No. 4, Fall 2001, pp. 27-52. Available at SSRN: https://ssrn.com/abstract=2182664

Alexander L. Wolman (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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