RAMSEY MONETARY POLICY WITH CAPITAL ACCUMULATION AND NOMINAL RIGIDITIES

Ester Faia

22 citations0/0 files storedMacroeconomic Dynamics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

Recent literature on the design of optimal monetary policy has shown that deviations from price stability are small whenever prices are sticky. This paper reconsiders this issue by introducing capital accumulation in the model. Optimal monetary policy in this setup implies small deviations from price stability. The monetary authority optimally uses inflation as an explicit tax on monopolistic profits to reduce the price markup across states. Variable markup is achieved in this setup because the share of investment demand over output varies across states and in response to TFP shocks.

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References

1983Staggered prices in a utility-maximizing framework 2005INTEREST AND PRICES: FOUNDATIONS OF A THEORY OF MONETARY POLICY 2000Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory*1996Staggered Prices in a Utility-Maximizing Framework 1927A Contribution to the Theory of Taxation 2004Interest and Prices 1983Optimal fiscal and monetary policy in an economy without capital 1999Monetary Policy Rules

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2010Nowa synteza neoklasyczna w makroekonomii

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