Artikel

Optimal Monetary Policy with Staggered Wage and Price Contracts

We formulate an optimizing-agent model in which both labor and product markets exhibit monopolistic competition and staggered nominal contracts. The unconditional expectation of average household utility can be expressed in terms of the unconditional variances of the output gap, price inflation, and wage inflation. Monetary policy cannot achieve the Pareto-optimal equilibrium that would occur under completely flexible ­wages and prices; that is, the model exhibits a tradeoff in stabilizing the output gap, price inflation, and wage inflation. We characterize the optimal policy rule for reasonable calibrations of the model. We also find that strict price inflation targeting generates relatively large welfare losses, whereas several other simple policy rules perform nearly as well as the optimal rule.

Sprache
Englisch

Erschienen in
Journal: Credit and Capital Markets – Kredit und Kapital ; ISSN: 2199-1235 ; Volume: 52 ; Year: 2019 ; Issue: 4 ; Pages: 537-571

Klassifikation
Wirtschaft
Price Level; Inflation; Deflation
Business Fluctuations; Cycles
Monetary Policy
Thema
Monetary policy
Inflation targeting
Nominal wage and price rigidity
Staggered contracts

Ereignis
Geistige Schöpfung
(wer)
Erceg, Christopher J.
Henderson, Dale W.
Levin, Andrew T.
Ereignis
Veröffentlichung
(wer)
Duncker & Humblot
(wo)
Berlin
(wann)
2019

DOI
doi:10.3790/ccm.52.4.537
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

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Objekttyp

  • Artikel

Beteiligte

  • Erceg, Christopher J.
  • Henderson, Dale W.
  • Levin, Andrew T.
  • Duncker & Humblot

Entstanden

  • 2019

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