Asymmetries in monetary policy

Pierpaolo Benigno and Lorenza Rossi

European Economic Review, 2021, vol. 140, issue C

Abstract: Nonlinearities embedded in the standard New-Keynesian model show that a welfare-maximizing policymaker should behave in line with a contractionary bias, fearing more expansions in output and inflation rather than contractions. On the contrary, the aggregate-supply equation implies that any upward pressure coming from real marginal costs does not necessarily push up inflation. Once these two forces are combined in the optimal policy, an overall expansionary bias emerges. The nonlinearities of the AS equation combined with changes in volatility can be responsible for a flattening in the estimated linear Phillips curve.

Keywords: Bias in stabilization policy (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:140:y:2021:i:c:s0014292121002403

DOI: 10.1016/j.euroecorev.2021.103945

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