Optimal monetary policy in the generalized Taylor economy

Engin Kara

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 10, 2023-2037

Abstract: In this paper, we use the generalized Taylor economy (GTE) framework to examine the optimal choice of inflation index. In this otherwise standard dynamic stochastic general equilibrium (DSGE) model, there can be many sectors, each with a different contract length. In the GTE framework with an empirically relevant contract structure, a simple rule under which the interest rate responds to economy-wide inflation gives a welfare outcome nearly identical to the optimal policy. This finding suggests that it may not be necessary for a well-designed monetary policy to respond to sector-specific inflations.

Keywords: Inflation; targeting; Optimal; monetary; policy (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (21)

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Working Paper: Optimal monetary policy in the generalized Taylor economy (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:10:p:2023-2037

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