The New Neoclassical Synthesis and the Role of Monetary Policy
Federal Reserve Bank of Richmond and University of Virginia; University of Virginia, NBER, and Federal Reserve Bank of Richmond
New Neoclassical Synthesis model combining RBC core with monopolistic competition, Calvo-style staggered price setting, and money demand; analyzes optimal monetary policy for markup stabilization and price stability
intermediate firms face constant elasticity demand, set prices subject to Calvo-style staggered adjustment, markup over marginal cost; final goods aggregator uses CES technology
Figure 3 Panel C p.264
Comparison case showing 10% inflation raises average markup from 1.10 to 1.1044