Optimal fiscal and monetary policy under sticky prices
Rutgers University, CEPR, and NBER; University of Pennsylvania and NBER
Stochastic production economy with monopolistically competitive intermediate goods producers, Rotemberg quadratic price adjustment costs, money-in-utility via transaction costs, distortionary income taxes, and nominal non-state-contingent gover
intermediate firms: monopolistic competition with differentiated goods, Rotemberg price adjustment costs; final firms: Dixit-Stiglitz aggregator, perfect competition
Table 2 p.14
Baseline sticky-price economy with imperfect competition (y=17.5/4, Z=-6), near price stability optimal
Authors describe as baseline sticky-price economy; main result of the paper showing optimal inflation volatility near zero under sticky prices