Optimal monetary policy in an economy with real rigidity

Daisuke Ida

Economics Bulletin, 2012, vol. 32, issue 3, 2281-2292

Abstract: Several studies address the importance of the effect of real rigidity on macroeconomic variables. The presence of real rigidity might change the property of optimal monetary policy suggested by the canonical new Keynesian model. We examine optimal monetary policy in an economy with real rigidity. According to our simulation results, the welfare gain associated with a commitment policy declines as the degree of real rigidity increases. This paper also finds that price level targeting is an effective policy regime when real rigidity is present.

Keywords: Real rigidity; Optimal monetary policy; Commitment; Discretion; Targeting regimes (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2012-08-21
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