Optimal monetary policy with state-dependent pricing

Anton Nakov and Carlos Thomas

No 1250, Working Paper Series from European Central Bank

Abstract: We study optimal monetary policy in a flexible state-dependent pricing framework, in which monopolistic competition and stochastic menu costs are the only distortions. We show analytically that it is optimal to commit to zero inflation in the long run. Moreover, our numerical simulations indicate that the optimal stabilization policy is "price stability". These findings represent a generalization to a state-dependent framework of the same results found for the simple Calvo model with exogenous timing of price adjustment. JEL Classification: E31

Keywords: optimal monetary policy; price stability; state-dependent pricing; stochastic menu costs (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-eec, nep-for and nep-mac
Note: 374708
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal Monetary Policy with State-Dependent Pricing (2014)
Working Paper: Optimal Monetary Policy with State-Dependent Pricing (2014)
Working Paper: Optimal monetary policy with state-dependent pricing (2011)
Working Paper: Optimal monetary policy with state-dependent pricing (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101250

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