Optimal monetary policy under fairness concerns in pricing

Toyoichiro Shirota

Economics Letters, 2025, vol. 247, issue C

Abstract: This study explores the implications of fairness concerns in pricing for optimal monetary policy. Building on the fair-pricing model of Eyster et al. (2001), it derives a utility-based welfare loss function and identifies two key findings. First, fairness concerns shift the policy objective from stabilizing inflation, as emphasized in New Keynesian models, to minimizing and stabilizing perceived unfairness. Second, the analysis uncovers a novel disinflationary bias under discretionary policy, which contrasts with the inflationary bias widely discussed in the literature.

Keywords: Fairness concerns; Disinflationary bias; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: D91 E31 E52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006244

DOI: 10.1016/j.econlet.2024.112140

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