Welfare-maximizing monetary policy under parameter uncertainty
Board of Governors of the Federal Reserve System; Goethe University Frankfurt; Federal Reserve Bank of San Francisco
New Keynesian DSGE model with Rotemberg quadratic adjustment costs for prices and wages, habit formation in consumption, non-separable preferences between consumption and leisure, and time-varying elasticities of substitution
intermediate goods firms: monopolistic competition with Rotemberg price adjustment costs; final goods firms: perfect competition with Dixit-Stiglitz aggregation
Section 3.2 p.136
Steady-state rates of price and wage inflation set to zero for estimation and welfare analysis
Authors explicitly state steady-state inflation rates are set to zero in Section 3.2 and this is the baseline calibration for all welfare-maximizing policy analysis