Sectoral inflation persistence and optimal monetary policy

Daisuke Ida

Journal of Macroeconomics, 2020, vol. 65, issue C

Abstract: This paper examines optimal monetary policy in a new Keynesian model with sectoral inflation persistence. It focuses on the welfare differential between timeless perspective (TP) and a purely discretionary monetary policy. Sectoral inflation persistence renders the central bank’s optimization problem more complicated under both cases of constant elasticity of substitution consumption index and generalized rule-of-thumb price setting. We find that there are substantial gains from employing a TP policy. This paper addresses the fact that this gain is robust with any changes in key structural parameters.

Keywords: Optimal monetary policy; Sectoral inflation persistence; Timeless perspective; Discretion; New Keynesian model (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:65:y:2020:i:c:s0164070420301415

DOI: 10.1016/j.jmacro.2020.103215

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