Resource title

Optimal interest rate stabilization in a basic sticky-price model

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Resource description

This paper studies optimal monetary policy with the nominal interest rate as the single policy instrument in an economy,where firms set prices in a staggered way without indexation and real money balances contribute separately to households'utility. The optimal deterministic steady state under commitment is the Friedman rule - even of the importance assigned to the utility of money is small relative to consumption and leisure. We approximate the model around the optimal steady state as the long-run policy target. Optimal monetary policy is characterized by stabilization of the nominal interest rate instead of inflation stabilization as the predominant principle.

Resource author

Matthias Paustian, Christian Stoltenberg

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25155

Resource license

Adapt according to the presented license agreement and reference the original author.