Optimal policy design in nonlinear DSGE models: An n-order accurate approximation
Department of Economics, Monash University; Department of Economics, University of Melbourne
New Keynesian model with Rotemberg quadratic price adjustment costs and asymmetric (Linex) nominal wage adjustment costs, allowing for downward nominal wage rigidity. Households supply labor monopolistically with CRRA utility. Model solved usin
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; final firms: perfect competition
QC approximation with quadratic price and wage adjustment costs (symmetric, no asymmetry)