Inflation persistence, backward-looking firms, and monetary policy in an input-output economy

Brad E. Strum
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Brad E. Strum: https://www.federalreserve.gov/econres/brad-e-strum.htm

No 2010-55, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies the implications of inflation persistence (generated by backward-looking price setters) for monetary policy in a New Keynesian \"input-output\" model--a model with sticky prices in both intermediate and final goods sectors. Optimal policy under commitment depends on the degree of inflation persistence in both sectors. Under discretion, speed-limit targeting--targeting the change in the output gap--outperforms price-level and inflation targeting in the presence of inflation persistence. If inflation persistence is low in the intermediate goods sector, price-level targeting outperforms inflation targeting despite high inflation persistence in the final goods sector.

Keywords: Inflation (Finance); Monetary policy (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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