Oil shocks and optimal monetary policy
Banco Central de Reserva del Perú, Bank for International Settlements, CENTRUM Católica
Standard New Keynesian model extended with oil as a nonproduced input in a CES production function, allowing for low substitutability between labor and oil. Includes staggered price-setting (Calvo), monopolistic competition, and proportional sa
intermediate firms: monopolistic competition with CES production function (labor and oil inputs); final firms: perfect competition aggregating intermediate goods
Figure 4 p.258
Optimal noninertial plan response to oil shock, ψ=1 (Cobb-Douglas, no trade-off)