Optimal Monetary Policy with Relative Price Distortions
Kookmin University; Board of Governors of the Federal Reserve System
Calvo-type staggered price-setting with relative price distortions, employment subsidy to offset monopolistic competition distortion, money as unit of account only, Ramsey optimal monetary policy
monopolistic competition, Calvo staggered price-setting, constant returns to scale production
Section II, equations (2.7)-(2.8)
Optimal monetary policy during transition with initial price dispersion (A_{-1}>1); deflation occurs during transition