New Perspectives on Monetary Policy, Inflation, and the Business Cycle
52 Pages Posted: 7 Feb 2002 Last revised: 28 Nov 2009
Date Written: February 2002
The present paper provides an overview of recent developments in the analysis of monetary policy in the presence of nominal rigidities. The paper emphasizes the existence of several dimensions in which the recent literature provides a new perspective on the linkages among monetary policy, inflation, and the business cycle. It is argued that the adoption of an explicitly optimizing, general equilibrium framework has not been superfluous; on the contrary, it has yielded many insights which, by their nature, could hardly have been obtained with earlier non-optimizing models.
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