Arbeitspapier
Optimal stabilization policy with flexible prices
We construct a dynamic stochastic general equilibrium model to study optimal monetary stabilization policy. Prices are fully flexible and money is essential for trade. Our main result is that if the central bank pursues a long-run price path, thereby controlling inflation expectations, it can improve welfare by stabilizing short-run aggregate shocks. The optimal policy involves smoothing nominal interest rates which effectively smooths consumption across states. Failure to follow a long-run price path makes any stabilization attempt ineffective.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 1638
- Classification
-
Wirtschaft
- Subject
-
Geldpolitik
Preisniveaustabilität
Konjunkturpolitik
Soziale Wohlfahrtsfunktion
Theorie
Preisrigidität
Allgemeines Gleichgewicht
Theorie
- Event
-
Geistige Schöpfung
- (who)
-
Berentsen, Aleksander
Waller, Christopher Jude
- Event
-
Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
-
2005
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Berentsen, Aleksander
- Waller, Christopher Jude
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2005
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