A primer on optimal monetary policy with staggered price-setting

Monetary policy ; Inflation (Finance) ; Prices

Zero inflation and the Friedman rule: a welfare comparison

Inflation (Finance) ; Prices

The frequency and costs of individual price adjustments

Prices

Staggered price setting and the zero bound on nominal interest rates

Interest rates ; Inflation (Finance) ; Econometric models

Bond price premiums

Bonds - Prices

Sticky prices, marginal cost, and the behavior of inflation

Prices ; Inflation (Finance)

Monetary discretion, pricing complementarity and dynamic multiple equilibria

In a plain-vanilla New Keynesian model with two-period staggered price-setting, discretionary monetary policy leads to multiple equilibria. Complementarity between the pricing decisions of forward-looking firms underlies the multiplicity, which is intrinsically dynamic in nature. At each point in time, the discretionary monetary authority optimally accommodates the level of predetermined prices when setting the money supply because it is concerned solely about real activity. Hence, if other firms set a high price in the current period, an individual firm will optimally choose a high price because it knows that the monetary authority next period will accommodate with a high money supply. Under commitment, the mechanism generating complementarity is absent: the monetary authority commits not to respond to future predetermined prices. Multiple equilibria also arise in other similar contexts where (i) a policymaker cannot commit, and (ii) forward-looking agents determine a state variable to which future policy respond. JEL Klassifikation: E5, E61, D7

Trend inflation, firm-specific capital, and sticky prices

Inflation (Finance) ; Prices

Inflation and changing expenditure shares

Inflation (Finance)