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 in steady state with no initial price dispersion (A_{-1}=1)
Authors state complete price level stabilization is optimal in absence of initial price dispersion - main theoretical result