Optimal monetary policy and downward nominal wage rigidity in frictional labor markets
Texas Tech University, Department of Economics
Labor search and matching model with downward nominal wage rigidity (DNWR) using Linex adjustment cost function, Rotemberg price stickiness, money-in-utility, and Nash bargaining over nominal wages and hours
monopolistic competition with Rotemberg price adjustment costs, search and matching frictions for hiring, asymmetric Linex nominal wage adjustment costs
Optimal long-run inflation with DNWR, asymmetric wage adjustment cost, no money demand
Authors emphasize this as the main result for optimal inflation with DNWR and no money demand motive
Optimal long-run inflation with DNWR, asymmetric wage adjustment cost, with money demand
Optimal long-run inflation with symmetric wage adjustment cost (no DNWR), no money demand
Optimal long-run inflation with symmetric wage adjustment cost (no DNWR), with money demand
Optimal long-run inflation with DNWR and asymmetric price adjustment cost, no money demand
Optimal long-run inflation with DNWR and asymmetric price adjustment cost, with money demand
Optimal long-run inflation with DNWR, workers pay wage adjustment cost, no money demand
Optimal long-run inflation with DNWR, workers pay wage adjustment cost, with money demand
Optimal long-run inflation with DNWR and wage indexation to past inflation, no money demand
Optimal long-run inflation with DNWR and wage indexation to past inflation, with money demand
Optimal long-run inflation with DNWR, deviations from Hosios condition, no money demand
Optimal long-run inflation with DNWR, deviations from Hosios condition, with money demand
Optimal monetary policy and imperfect financial markets: A case for negative nominal interest rates?
Texas Tech University; University of Georgia
New Keynesian model with money-in-utility, borrowing constraints on households tied to labor income, and monopolistically competitive intermediate-good firms with Rotemberg price adjustment costs. Extension includes monopolistic competition in
consumption, leisure, real money balances
intermediate-good firms: monopolistic competition with Rotemberg pricing, owned by risk-neutral entrepreneurs; final-good firms: perfect competition with CES aggregation
Entrepreneurs/depositors who are more patient than households (delta > beta), risk-neutral, own intermediate-good firms and provide deposits to banks
Money demand only - flexible prices, perfect product markets, frictionless credit markets
Sticky prices and monopolistic competition only - no money demand, no credit frictions
Money demand, sticky prices, and monopolistic competition - no credit frictions
Full model - money demand, sticky prices, monopolistic competition, and credit frictions under commitment
Authors describe as the main finding of the article - full model with all frictions
Full model with low labor supply elasticity (gamma=4.0)
Full model with infinite labor supply elasticity (gamma=0.0)
Full model with loan-to-value ratio eta=0.5
Full model with loan-to-value ratio eta=1.0
Full model with linear production function (alpha=1)
Imperfect banking sector - benchmark with market power in both loan and deposit markets
Imperfect banking sector - competitive deposit market
Imperfect banking sector - competitive loan market
Optimal long-run inflation with occasionally binding financial constraints
New Keynesian model with occasionally binding collateral constraints on intermediate-good firms hiring labor. Entrepreneurs face hold-up problem requiring collateral to back wage payments. Financial friction arises from constraint that hiring l
intermediate-good firms (entrepreneurs), final-good firms
intermediate-good firms: linear production in labor, face collateral constraint on hiring; final-good firms: monopolistic competition, Rotemberg quadratic price adjustment costs
Entrepreneurs: more impatient than households (additional discount factor delta), accumulate net worth via share purchases, remit profits to households lump-sum
Optimal long-run inflation with TFP shock only, occasionally binding collateral constraint
Benchmark calibration with TFP shock, main result discussed throughout paper
Optimal long-run inflation with markup shock only, occasionally binding collateral constraint
Optimal long-run inflation with simultaneous TFP and markup shocks, occasionally binding collateral constraint
Robustness: price duration λ=2 quarters, TFP shock
Robustness: price duration λ=2 quarters, markup shock
Robustness: price duration λ=2 quarters, simultaneous shocks
Robustness: price duration λ=3 quarters, TFP shock
Robustness: price duration λ=3 quarters, markup shock
Robustness: price duration λ=3 quarters, simultaneous shocks
Robustness: with money demand (MIU), TFP shock
Robustness: with money demand (MIU), markup shock
Robustness: with ZLB constraint, TFP shock
Robustness: with ZLB constraint, markup shock
Deterministic steady state optimal inflation (no shocks)
No credit frictions case (α=0 or μ=0), optimal inflation is zero
Optimal monetary policy with the cost channel and monopolistically-competitive banks
New Keynesian model with cost channel (working capital), monopolistically-competitive banking sector with market power in deposit and loan markets, deposit and loan adjustment costs, and money-in-the-utility function with cash and deposits as i
consumption, labor, real money balances (cash and deposits)
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; final firms: perfect competition with CES aggregation
Perfect competition in deposit market, flexible deposits, flexible prices
Perfect competition in deposit market, flexible deposits, sticky prices
Imperfect competition in deposit market, flexible deposits, flexible prices
Imperfect competition in deposit market, flexible deposits, sticky prices
Imperfect competition in deposit market, sticky deposits, flexible prices
Imperfect competition in deposit market, sticky deposits, sticky prices; perfect competition in loan market
Imperfect competition in deposit and loan markets, flexible deposits, sticky loans, flexible prices
Imperfect competition in deposit and loan markets, flexible deposits, sticky loans, sticky prices
Imperfect competition in deposit and loan markets, sticky deposits and loans, flexible prices
Most expanded model: imperfect competition in deposit and loan markets, sticky deposits and loans, sticky prices
Authors describe this as the most expanded model with all frictions; used as benchmark for welfare analyses in Table 4
Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates
CEPR, London, and the European Central Bank (Adam); Federal Reserve Bank of Kansas City (Billi)
Standard New Keynesian model with Calvo price stickiness augmented by an occasionally binding zero lower bound constraint on nominal interest rates; optimal monetary policy under commitment derived via Ramsey approach with recursive Lagrangian
monopolistic competition with Calvo staggered price setting
Mean response to negative 3 s.d. real rate shock under optimal commitment policy with ZLB
Authors describe this as the key quantitative result for optimal policy response to binding ZLB shocks in Section 5.2
Average inflation under optimal commitment policy with ZLB - baseline calibration
Average inflation with threefold variance of real rate shocks
Average inflation under RBC calibration with lower interest rate elasticity (sigma=1)
Required inflation response to negative 3 s.d. real rate shock under RBC calibration
New Keynesian model with Calvo price stickiness, trend inflation, and relative price distortions across cohorts of price-setters
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition
Optimal steady state inflation rate under Calvo pricing with baseline calibration
Main result shown in Figure 2 as optimal inflation rate maximizing aggregate productivity
Banco de Portugal; Banco de Portugal, Universidade Catolica Portuguesa and CEPR; Federal Reserve Bank of Chicago, CEPR
Real business cycles model without capital with monopolistic competition, cash-in-advance constraint on household transactions, and prices set one period in advance (sticky prices). Government finances exogenous expenditures with lump-sum taxes
monopolistic competition with prices set one period in advance; constant elasticity of substitution between goods
Friedman rule optimal under sticky prices - nominal interest rate set to zero implies zero inflation or deflation at rate of time preference
Main theoretical result of paper: Proposition 2 states optimal interest rate policy is Friedman rule (Rt=1)
Friedman rule optimal under flexible prices - benchmark comparison case
The Macroeconomic Effects of Nonzero Trend Inflation
Bank of Canada; Université du Québec à Montréal; Bank of Canada
Standard New Keynesian DSGE model with monopolistically competitive intermediate goods firms, three alternative time-dependent pricing schemes (Calvo, truncated-Calvo, Taylor), capital accumulation with adjustment costs, money-in-utility, and T
consumption, real money balances, leisure
intermediate goods firms, final good firm
intermediate goods firms: monopolistic competition with time-dependent pricing (Calvo, truncated-Calvo, or Taylor); final good firm: perfect competition with CES aggregator
Calvo pricing with zero trend inflation (deterministic steady state)
Calvo pricing with zero trend inflation (stochastic mean)
Authors emphasize stochastic mean as key result showing deviation from deterministic steady state
Calvo pricing with 4% trend inflation (deterministic steady state)
Calvo pricing with 4% trend inflation (stochastic mean exceeds target)
Truncated-Calvo pricing with zero trend inflation (deterministic steady state)
Truncated-Calvo pricing with zero trend inflation (stochastic mean)
Truncated-Calvo pricing with 4% trend inflation (deterministic steady state)
Truncated-Calvo pricing with 4% trend inflation (stochastic mean)
Taylor pricing with zero trend inflation (deterministic steady state)
Taylor pricing with zero trend inflation (stochastic mean)
Taylor pricing with 4% trend inflation (deterministic steady state)
Taylor pricing with 4% trend inflation (stochastic mean)
Trend inflation, wage and price rigidities, and productivity growth
Amano, R., Moran, K., Murchison, S., Rennison, A.
Erceg et al. (2000) model extended to account for non-zero trend inflation and steady-state real per capita output growth with Taylor-style staggered nominal price and wage contracts
intermediate firms: monopolistic competition with Taylor staggered price contracts; final firms: perfect competition with CES aggregation
labour aggregators: perfect competition, aggregate differentiated labour using CES technology
Benchmark calibration with 2% productivity growth, Taylor wage contracts I=4, price contracts J=2
Authors identify this as the benchmark optimal inflation rate in Section 5.2
High curvature in labour disutility (nu=2)
No curvature in labour disutility (nu=0)
Lower elasticity in labour market (theta=4)
Higher elasticity in labour market (theta=51)
Wage contracts indexed to productivity growth
Implications of habit formation for optimal monetary policy
Bank for International Settlements; Board of Governors of the Federal Reserve System
Standard New Keynesian model augmented with habit formation in consumption, affecting both aggregate demand (IS curve) and aggregate supply (Phillips curve) through marginal utility of consumption
consumption with habit formation, labor supply
Calvo staggered price setting with fraction 1-alpha adjusting each period; monopolistic competition with elasticity of substitution theta
Optimal plan with h=0 (time-separable utility), base case calibration
h=0 is the standard benchmark case without habit formation, representing the baseline comparison point
Optimal plan with h=0.4 (intermediate habit formation), base case calibration
Optimal plan with h=0.8 (Fuhrer's estimate of habit formation), base case calibration
Optimal plan with h=0, alternative calibration (sigma=omega=2)
Optimal plan with h=0.4, alternative calibration (sigma=omega=2)
Optimal plan with h=0.8, alternative calibration (sigma=omega=2)
Simple interest rate rule with h=0, base case calibration
Simple interest rate rule with h=0.4, base case calibration
Simple interest rate rule with h=0.8, base case calibration
Optimal Monetary Policy in a Model with Recursive Preferences
New Keynesian model with Epstein-Zin recursive preferences, Calvo sticky prices, and optimal monetary policy analysis
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition with CES aggregation
Nonstochastic Ramsey steady state optimal inflation
Authors report this as the Ramsey steady state inflation rate which serves as the reference for all policy rule comparisons
Contemporaneous smoothing optimal simple rule
Contemporaneous no smoothing optimal simple rule
Backward looking optimal simple rule (i=1)
Forward looking optimal simple rule (i=-1)
Standard Taylor Rule (psi_pi=1.5, psi_y=0.5)
Simple Taylor Rule (psi_pi=1.5, psi_y=0)
Banking Competition, Collateral Constraints, and Optimal Monetary Policy
University of Valencia; Banco de Espana; Banco de Espana
New Keynesian DSGE model with two distinct financial frictions: monopolistically competitive banks charging endogenous lending spreads (Salop spatial competition model), and collateral constraints on entrepreneurs. Features households (savers)
entrepreneurs (intermediate goods), final goods producers
entrepreneurs: perfect competition, Cobb-Douglas production with labor and commercial real estate; final goods producers: monopolistic competition with Calvo pricing
Banks: monopolistically competitive in loans market using Salop circular-city spatial competition model, perfectly competitive in deposits market; set optimal lending rates with endogenous spreads
Ramsey optimal long-run gross rate of inflation is πss = 1 (zero net inflation), regardless of whether the steady state is assumed to be efficient or not
Authors state in footnote 21 that the Ramsey optimal long-run gross rate of inflation is πss = 1, which is the main theoretical result for optimal steady-state inflation
Standard deviation of annualized inflation under optimal policy commitment conditional on productivity shocks
Standard deviation of annualized inflation under strict inflation targeting conditional on productivity shocks
Standard deviation of annualized inflation under optimal policy commitment conditional on pledgeability ratio shocks (credit crunch)
Standard deviation of annualized inflation under strict inflation targeting conditional on pledgeability ratio shocks (credit crunch)
Standard deviation of annualized inflation under optimal policy with perfect banking competition conditional on productivity shocks
Standard deviation of annualized inflation under optimal policy with perfect banking competition conditional on pledgeability ratio shocks
Optimal monetary policy in a New Keynesian model with endogenous growth
University of Rome 'Tor Vergata'; University of Pavia
New Keynesian model with endogenous growth via learning-by-doing (Romer 1986 AK technology with knowledge spillovers external to firms), Calvo staggered pricing, capital accumulation, and government spending financed by lump-sum taxes
Ramsey optimal steady-state inflation in NK model with endogenous growth and knowledge spillovers
Authors state this is the main finding: 'the steady-state inflation rate associated with the Ramsey optimal policy turns out to be zero'
Innovation, Growth, and Optimal Monetary Policy
Università degli Studi di Roma "Tor Vergata"
New Keynesian DSGE model with R&D-driven endogenous growth via expanding variety of intermediate goods (Romer 1990 style), monopolistically competitive final and intermediate goods sectors with Rotemberg price adjustment costs in both sectors,
final goods firms, intermediate goods firms, R&D sector
final goods firms: monopolistic competition with Rotemberg pricing; intermediate goods firms: monopolistic competition with Rotemberg pricing and survival rate φ; R&D sector: perfect competition with linear technology and congestion externality
Ramsey optimal trend inflation in endogenous growth model with R&D
Authors describe this as the benchmark case for the endogenous growth model in Section 3.1
Ramsey optimal trend inflation in exogenous growth model
Ramsey optimal trend inflation when price rigidities removed from intermediate goods sector
Optimal monetary policy responses to relative-price changes
Two-sector New Keynesian model with a flexible-price sector and a sticky-price sector (Calvo pricing), used to analyze optimal monetary policy responses to relative-price changes and sector-specific supply shocks
consumption, labor (disutility of production)
flexible-price sector (competitive), sticky-price sector (monopolistic competition)
flexible-price sector: price takers with flexible prices; sticky-price sector: Calvo staggered pricing with constant markup
Optimal monetary policy is complete stabilization of sticky-price inflation at zero
Main theoretical result: optimal policy stabilizes sticky-price (core) inflation at zero, stated in Section 4.1-4.2
Optimal fiscal and monetary policy with costly wage bargaining
Federal Reserve Board; University of Maryland
Labor search and matching model (Pissarides-style) with costly nominal wage adjustment (Rotemberg quadratic adjustment costs), Nash wage bargaining, cash-in-advance constraint, and distortionary labor income taxation in a Ramsey optimal policy
consumption of cash goods, consumption of credit goods
firms engage in costly search for workers, production requires only labor, subject to common technology shock, quadratic nominal wage adjustment costs
Ramsey steady state with no wage rigidity (flexible wages), Friedman Rule optimal
Ramsey steady state with two quarters of nominal wage stickiness
Authors present two quarters of wage stickiness as intermediate baseline case in their analysis
Ramsey steady state with three quarters of nominal wage stickiness
Ramsey steady state with four quarters of nominal wage stickiness
Optimal Fiscal and Monetary Policy in Customer Markets
Arseneau, D.M., Chahrour, R., Chugh, S.K., Finkelstein Shapiro, A.
Federal Reserve Board; Boston College and Toulouse School of Economics; Boston College and Kiel Institute; Universidad de los Andes
Cash-good/credit-good economy with customer markets requiring search and matching, advertising by firms to attract customers, Nash bargaining for customer market prices, Rotemberg sticky prices for intermediate goods, and a complete set of fisc
Walrasian cash goods, Walrasian credit goods, customer market cash goods, customer market credit goods, leisure
intermediate goods firms, Walrasian final goods firms, customer market firms
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; Walrasian final goods: perfect competition with Dixit-Stiglitz bundling; customer market firms: search and matching with advertising costs and Nash bargaining
Ramsey optimal policy with complete taxes and sticky prices; Long-run π = 0.9924 implies quarterly deflation of approximately 0.76%
Authors present this as the baseline Ramsey optimal policy result with complete tax instruments under sticky prices in Table 4
Ramsey with flexible prices and complete taxes; volatility of inflation reported as coefficient of variation relative to GDP
Ramsey with sticky prices and complete taxes; volatility of inflation reported as coefficient of variation relative to GDP is 0.00
Ramsey with sticky prices and incomplete taxes (labor tax and interest rate only); volatility of inflation is 0.00
Ramsey with flexible prices and incomplete taxes; volatility of inflation reported as coefficient of variation relative to GDP
Ramsey with sticky prices, incomplete taxes, and no customer search markets; volatility of inflation is 0.00
Optimal fiscal and monetary policy when money is essential
Lagos-Wright search-based monetary model with capital accumulation (AWW extension), featuring decentralized market (DM) with bilateral trading and centralized market (CM), where money is essential due to explicit spatial and informational frict
CM consumption, DM consumption, labor, capital, money holdings, bonds
CM firms: perfectly competitive with CRS technology; DM sellers: bilateral production using capital and effort
Optimal policy features strictly positive net nominal interest rate; Friedman Rule is not optimal; deviation from zero inflation due to need to tax cash-intensive activities
Main theoretical result of the paper: Propositions 3 and 4 establish that Friedman Rule (zero nominal interest rate/deflation) is typically not optimal
Optimal monetary policy under low trend inflation
University of Pavia; University of Milan-Bicocca, Bank of Italy
Standard New Keynesian model extended to allow for positive trend inflation, with Calvo price-setting and cost-push shocks
Zero trend inflation baseline under discretion
Zero trend inflation is the standard benchmark case against which all other results are compared
2% annual trend inflation under discretion
4% annual trend inflation under discretion
6% annual trend inflation under discretion
8% annual trend inflation under discretion
10% annual trend inflation under discretion
2% annual trend inflation under commitment
4% annual trend inflation under commitment
6% annual trend inflation under commitment
8% annual trend inflation under commitment
10% annual trend inflation under commitment
On the Welfare and Cyclical Implications of Moderate Trend Inflation
University of Oxford and Pavia; University of Quebec at Montreal; University of Notre Dame and NBER
Medium-scale New Keynesian DSGE with Calvo wage and price contracts, habit formation, investment adjustment costs, variable capital utilization, roundabout production structure, extended working capital channel, trend growth in neutral and inve
intermediate firms, final good firm, labor packer
intermediate firms: monopolistic competition with Calvo pricing; final good firm: perfect competition; labor packer: perfect competition
financial intermediary providing working capital loans to firms for all variable inputs
Baseline trend inflation rate used as reference point for welfare comparisons
Authors use 2 percent as the baseline trend inflation rate consistent with consensus inflation target
Alternative higher trend inflation rate for welfare cost analysis
Observed average trend inflation from US data 1960:I-2007:III
No RP, EB, or MEI shocks, flexible wages, no growth - simplified sticky-price model
More persistent MEI shock (rho_I = 0.95)
Less persistent MEI shock (rho_I = 0.66)
The comeback of inflation as an optimal public finance tool
Di Bartolomeo, G., Tirelli, P., Acocella, N.
New Keynesian DSGE with Rotemberg price adjustment costs, distortionary taxation, public consumption, public transfers, and government debt; Ramsey optimal monetary and fiscal policy
intermediate firms: monopolistic competition with Rotemberg adjustment costs; final firms: perfect competition
Optimal Ramsey inflation with public consumption at 20% of output
Baseline calibration with public consumption at 20% of output shown in Figure 1 Panel (a)
Optimal Ramsey inflation with public consumption at 30% of output
Optimal Ramsey inflation with public consumption at 40% of output
Optimal Ramsey inflation with public transfers at 0% of output
Optimal Ramsey inflation with public transfers at 10% of output
Optimal Ramsey inflation with public transfers at 20% of output
Should central banks target investment prices?
Boston College Working Papers in Economics
Two-sector New Keynesian model with consumption and investment goods sectors, Calvo pricing in both sectors, sector-specific technology shocks with trends, capital accumulation with adjustment costs, and labor immobile across sectors
consumption goods firms, investment goods firms
monopolistic competition in both sectors with Calvo pricing; constant returns to scale Cobb-Douglas production
Optimal monetary policy under commitment with sticky prices in both consumption and investment sectors
Authors describe optimal policy as the benchmark for welfare comparisons throughout the paper
CPI inflation targeting rule - monetary policy responds only to consumer price inflation
Investment inflation targeting rule - monetary policy responds only to investment price inflation
Hybrid rule targeting both CPI and investment inflation with approximately equal weights
Steady-state CPI inflation rate used in calibration
Monetary Policy, Doubts and Asset Prices
Luiss Guido Carli; EIEF Einaudi Institute for Economics and Finance
New Keynesian DSGE model with doubts and ambiguity aversion (robust control framework of Hansen-Sargent), capital accumulation with adjustment costs, Calvo price stickiness, and monopolistic competition. Households distrust the reference probab
recursive non-expected utility with ambiguity aversion
intermediate firms, final goods aggregator
intermediate firms: monopolistic competition with Calvo pricing; final goods: perfect competition with Dixit-Stiglitz aggregation
Optimal policy under rational expectations (no model uncertainty, psi=1)
Optimal policy under model uncertainty psi=25
Optimal policy under model uncertainty psi=50
Optimal policy under model uncertainty psi=100
Optimal policy under model uncertainty psi=150, matches observed equity premium
Authors state psi=150 matches the average U.S. equity premium of 5.5% per year (p.15), making it the empirically relevant calibration
University of Bern; University of Lancaster
Standard New Keynesian model with Calvo pricing, monopolistic competition, and mark-up shocks; cubic approximation of welfare and quadratic approximation of model constraints for optimal policy analysis
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition with Dixit-Stiglitz aggregation
Optimal policy response to positive mark-up shock under second-order approximation; inflation higher than first-order approximation
Main result demonstrating expansionary bias in optimal policy under nonlinear framework
Optimal policy response to positive mark-up shock under first-order (linear-quadratic) approximation
Optimal policy response to negative mark-up shock under second-order approximation; inflation substantially overshoots target
Counterfactual optimal policy using second-order approximation on U.S. data 1995Q1-2019Q3; inflation centered around 2% target
Counterfactual optimal policy using first-order approximation on U.S. data 1995Q1-2019Q3; inflation centered around 2% target
Optimal monetary policy in an estimated SIR model
Benmir, G., Jaccard, I., Vermandel, G. (2023)
London School of Economics and Political Science; European Central Bank; CMAP, Ecole polytechnique
Health New Keynesian (HeNK) model with SIR epidemiological dynamics where contagion occurs through consumption and labor supply decisions, featuring perfect consumption insurance across susceptible, infected, and recovered household members
Pre-epidemic steady state inflation rate calibrated for Euro Area
Ramsey optimal steady state implies zero inflation
Authors derive Ramsey optimal monetary policy as main contribution; zero inflation is the Ramsey steady state
Ramsey optimal monetary policy combined with optimized lockdown policy; price stability objective
Optimal monetary policy with endogenous entry and product variety
Bilbiie, F.O., Fujiwara, I., Ghironi, F.
Paris School of Economics, University of Paris 1 Panthéon-Sorbonne, and CEPR; Australian National University, CAMA, and EABCN; University of Washington, CEPR, EABCN, and NBER
New Keynesian DSGE model with endogenous firm entry, product variety, and Rotemberg quadratic price adjustment costs. Features homothetic preferences for variety (CES-DS, general CES, exponential, and translog specifications), monopolistic comp
monopolistic competition with endogenous entry, sunk entry costs, Rotemberg quadratic price adjustment costs, exogenous firm destruction probability
Ramsey-optimal long-run inflation under C.E.S. preferences with benefit of variety epsilon=0
Ramsey-optimal long-run inflation under C.E.S.-D.S. preferences where benefit of variety equals net markup (epsilon=1/(theta-1))
Ramsey-optimal long-run inflation under C.E.S. preferences with benefit of variety epsilon=1
Ramsey-optimal long-run inflation under translog preferences with baseline calibration sigma/fE=0.354
Authors describe translog as empirically important benchmark and use sigma/fE=0.354 as baseline calibration delivering elasticity of substitution 3.8
Ramsey-optimal long-run inflation under C.E.S. preferences with epsilon=0 and price indexation (gamma between 0.25 and 0.5)
Ramsey-optimal long-run inflation under C.E.S. preferences with epsilon=1 and price indexation (gamma between 0.25 and 0.5)
Ramsey-optimal long-run inflation under translog preferences with baseline calibration and price indexation
Ramsey-optimal long-run inflation under exponential preferences where benefit of variety equals net markup
Optimal monetary policy and liquidity with heterogeneous households
New Keynesian model with heterogeneous households, incomplete markets, limited participation in financial markets, money used for self-insurance against idiosyncratic risk, Rotemberg price adjustment costs, and Ramsey optimal monetary policy
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; final firms: perfect competition
Baseline Ramsey optimal steady-state inflation with heterogeneous households, sticky prices, and optimal subsidy
Authors present this as the baseline calibration result in Table 1 and Section 4.1
Friedman rule with flexible prices (beta=0.98 implies -2% quarterly)
Ramsey optimal with more flexible prices (nu=50)
Ramsey optimal with less elastic labor (phi=1)
Ramsey optimal with labor market calibration (alpha=0.95, rho=0.5, delta=0.5)
Ramsey optimal with distorted steady state (no subsidy, sigma=0), baseline calibration
Ramsey optimal with NK cross (endogenous N income), distorted steady state
Ramsey optimal with distorted SS and more flexible prices (nu=50)
Ramsey optimal with distorted SS and less elastic labor (phi=1)
Ramsey optimal with distorted SS and no SS inequality (beta approaching 1)
Ramsey optimal with distorted SS and labor market calibration
Ramsey optimal with New Keynesian Cross (endogenous N income), efficient SS
Ramsey optimal with Open Market operations (one-period repayment), efficient SS baseline
Ramsey optimal with Open Market operations, distorted SS baseline
Ramsey optimal with Open Market operations, NK cross efficient SS
Ramsey optimal with Open Market operations, NK cross distorted SS
Federal Reserve Bank of Kansas City Research Working Paper
Standard New Keynesian model with occasionally-binding zero lower bound on nominal interest rates and model uncertainty (robust control)
Optimal inflation with ZLB, baseline model uncertainty
Lower bound of optimal inflation range reported in abstract as main finding
Optimal inflation with ZLB, extreme model uncertainty
Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment
MIT and NBER; CREI, Universitat Pompeu Fabra, CEPR and NBER
New Keynesian model with labor market frictions (Diamond-Mortensen-Pissarides search and matching), hiring costs increasing in labor market tightness, real wage rigidities, and Calvo staggered price setting
intermediate firms: perfect competition, produce using labor with hiring costs; final firms: monopolistic competition with Calvo price staggering
Constrained-efficient allocation with labor market frictions; unemployment rate is constant and invariant to productivity shocks
The constrained-efficient allocation serves as the benchmark for optimal policy analysis throughout the paper
Unemployment stabilization policy; inflation varies negatively with productivity shocks
Strict inflation targeting policy; inflation fully stabilized at zero
Optimal monetary policy US calibration; balances inflation and unemployment stabilization
Optimal monetary policy Europe calibration; sclerotic labor market with lower job finding rate
Optimized simple Taylor rule US calibration; phi_pi=5, phi_u=-0.8
Optimized simple Taylor rule Europe calibration; phi_pi=2, phi_u=-0.6
Optimal Inflation Target in an Economy with Menu Costs and an Occasionally Binding Zero Lower Bound
Menu cost model with fat-tailed idiosyncratic productivity shocks, GHH preferences, Epstein-Zin recursive utility, complementarities in production (materials and labor), Taylor rule with occasionally binding zero lower bound, and multiple aggre
intermediate firms: monopolistic competition with menu costs and idiosyncratic productivity shocks; final firms: perfect competition with Dixit-Stiglitz aggregator
central bank follows Taylor rule subject to zero lower bound constraint
Optimal inflation target in menu cost model with ZLB constraint
Main result stated in abstract and throughout paper as optimal inflation target of 5% in menu cost model with ZLB
Optimal inflation target in Calvo model with ZLB constraint
Optimal inflation target in menu cost model without ZLB constraint
Optimal inflation target in Calvo model without ZLB constraint
Optimal Taylor Rules in New Keynesian Models
Standard three-equation New Keynesian model with Phillips Curve, IS curve, and Taylor rule; includes measurement error in output gap and inflation observations
monopolistic competition with Calvo pricing
Central bank follows Taylor rule and solves signal extraction problem using Kalman filter
Optimal Taylor rule minimizes weighted sum of squared inflation and output gap; steady state inflation target is zero
The paper analyzes optimal Taylor rule coefficients to minimize welfare loss function with inflation and output gap; the implicit optimal inflation target is zero (price stability)
Unemployment risk, liquidity traps, and monetary policy
Sapienza University of Rome; University of Southampton
Journal of Economic Dynamics and Control
Heterogeneous Agents New Keynesian (HANK) model with nominal price rigidities (Rotemberg), labor search-and-matching frictions, imperfect unemployment insurance, occasionally binding zero lower bound constraint, and bounded rationality (cogniti
intermediate goods firms, wholesale firms, final goods firms
intermediate firms: hire workers in frictional labor market; wholesale firms: monopolistic competition with Rotemberg price adjustment costs; final firms: perfect competition with CES aggregation
firm owners: do not face idiosyncratic risk, own all firms, receive dividends and lump-sum transfers, face zero-debt constraint
Constrained-efficient steady state with zero inflation target under optimal Ramsey policy
Authors derive constrained-efficient steady state with π=0 as optimal inflation target in Section 3.13, Eq. 69
Labor market frictions and optimal steady-state inflation
Uppsala University, UCLS and Sveriges Riksbank; Research Department, Sveriges Riksbank
New Keynesian DSGE model with search and matching labor market frictions (Mortensen-Pissarides), staggered nominal wage bargaining with some new hires entering existing wage structures, state-dependent price and wage adjustment (Dotsey et al.),
intermediate goods firms, wholesale firms, retailers
intermediate goods firms: monopolistic competition with state-dependent pricing; wholesale firms: perfect competition with search and matching labor market; retailers: perfect competition
Baseline model with state dependent prices and wages, snew=0.5
Authors describe as baseline calibration throughout paper and in Table 2
No price or wage rigidities - Friedman rule
State dependent prices only, flexible wages
No monetary frictions (cashless economy)
Demand elasticity sigma=20 (lower markup)
Demand elasticity sigma=6 (higher markup)
All new hires get rebargained wages (snew=1)
All workers enter existing wage structure (snew=0)
Infrequent but Long-Lived Zero-Bound Episodes and the Optimal Rate of Inflation
Dordal i Carreras, M., Coibion, O., Gorodnichenko, Y., Wieland, J. (2016)
UC Berkeley, UT Austin and NBER, UC Berkeley and NBER, UC San Diego and NBER
Standard New Keynesian model with Calvo pricing, internal habit formation, risk premium shocks driving ZLB episodes, and regime-switching process for risk premia to generate realistic ZLB duration distributions
Regime-switching model, low end estimate: ZLB duration ~10 quarters, frequency ~6%
Regime-switching model, high end estimate: ZLB duration ~15 quarters, frequency ~11%
Authors describe 1.5-3% as plausible range based on cross-country evidence; 3% represents high end consistent with US experience
AR(1) model, average ZLB duration ~5 quarters
AR(1) model, average ZLB duration ~6 quarters
Regime-switching model with Delta=9%, ZLB duration ~5-5.5 quarters, frequency 10%
Regime-switching model with Delta=9%, ZLB duration ~6.8 quarters, frequency 10%
Regime-switching model with Delta=6%, low end of plausible range
Regime-switching model with Delta=6%, high end of plausible range
Regime-switching model with Delta=12%, low end of plausible range
Regime-switching model with Delta=12%, high end of plausible range
Hopf bifurcation from new-Keynesian Taylor rule to Ramsey optimal policy
Paris School of Economics; Inseec U. Research Center ESCE
Standard New-Keynesian model with household intertemporal optimization, New-Keynesian Phillips curve, and comparison of Ramsey optimal policy versus Taylor rule
monopolistic competition with Calvo price setting
Ramsey optimal policy with inﬂation nutter preferences (μπ=1, μx=0, μi=10^-7)
First row of Table 2 representing baseline Ramsey optimal policy case
University of Wisconsin–Madison; Federal Reserve Bank of San Francisco
New Keynesian model with regime-switching growth rates, Rotemberg pricing without indexation, preference shocks, and Taylor rule monetary policy subject to zero lower bound
intermediate firms: monopolistic competition with Rotemberg pricing; final firms: perfect competition with CES aggregation
Optimal high growth rule without regime switching - price stability target
Optimal simple rule for high growth regime, baseline case without regime switching
Optimal low growth rule without regime switching
Low growth regime with only optimized target (inertia fixed at high growth optimal)
Optimal constant rule with regime switching in growth
Optimal switching rule - high growth regime target
Optimal switching rule - low growth regime target
Optimal fiscal and monetary policy with sticky wages and sticky prices
Cash-good/credit-good model with monopolistic competition in both product and labor markets, Rotemberg quadratic adjustment costs for both prices and wages, labor income taxation, and nominally risk-free government debt
consumption (cash goods, credit goods), leisure
intermediate firms, final goods firms, employment agencies
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; final goods firms: perfect competition with CES aggregation; employment agencies: perfect competition aggregating differentiated labor
Sticky prices, flexible wages; Ramsey steady-state optimal policy
Flexible prices, sticky wages; Ramsey steady-state optimal policy
Authors emphasize sticky wages as the main contribution; this is the key novel result
Sticky prices, sticky wages; Ramsey steady-state optimal policy
Perfect competition (εp=1, εw=1); Friedman Rule benchmark
Flexible prices, flexible wages; εp=1.1, εw=1.05; Ramsey steady-state
Perfect competition; simulation mean with gt and zt shocks
Flexible prices, flexible wages; simulation mean with gt and zt shocks
Sticky prices, flexible wages; simulation mean with gt and zt shocks
Flexible prices, sticky wages; simulation mean with gt and zt shocks
Sticky prices, sticky wages; simulation mean with gt and zt shocks
Optimal inflation persistence: Ramsey taxation with capital and habits
Cash-credit model with habit persistence in preferences and capital accumulation, featuring Ramsey optimal fiscal and monetary policy with distortionary labor and capital income taxes
consumption (cash goods, credit goods), labor, real money balances
representative firm, intermediate firms (in monopolistic competition extension)
perfect competition in baseline; monopolistic competition in extended model with Dixit-Stiglitz aggregator
No capital, no habit (a=0), Friedman Rule optimal, first-order approximation
No capital, habit (a=0.5), Friedman Rule optimal, first-order approximation
No capital, no habit (a=0), Friedman Rule optimal, second-order approximation
No capital, habit (a=0.5), Friedman Rule optimal, second-order approximation
Capital, no habit (a=0), Friedman Rule optimal, first-order approximation
Model with capital and no habit is the main extension; authors emphasize capital accumulation as central contribution
Capital, habit (a=0.5), Friedman Rule optimal, first-order approximation
No capital, no habit (a=0), monopolistic competition (markup=1.1), deviation from Friedman Rule
No capital, habit (a=0.5), monopolistic competition (markup=1.1), deviation from Friedman Rule
Capital, no habit (a=0), monopolistic competition (markup=1.1), deviation from Friedman Rule
Capital, habit (a=0.5), monopolistic competition (markup=1.1), deviation from Friedman Rule
No capital, no habit, Friedman Rule optimal, summary table
No capital, habit, Friedman Rule optimal, summary table
Capital, no habit, Friedman Rule optimal, summary table
Capital, habit, Friedman Rule optimal, summary table
Does the Timing of the Cash-in-Advance Constraint Matter for Optimal Fiscal and Monetary Policy?
Cash-in-advance model with cash goods and credit goods, comparing Lucas-Stokey/Chari-Christiano-Kehoe timing versus Svensson timing for optimal fiscal and monetary policy
cash goods consumption, credit goods consumption, leisure
linear-in-labor production technology with TFP shocks, perfect competition
LS/CCK timing with both TFP and government spending shocks
LS/CCK timing is the benchmark model in the Ramsey literature, with full set of shocks
Svensson timing with both TFP and government spending shocks
LS/CCK timing with only government spending shocks
Svensson timing with only government spending shocks - zero inflation variability
The Optimal Inflation Rate in New Keynesian Models
Coibion, O., Gorodnichenko, Y., & Wieland, J. F. (2010)
College of William and Mary; University of California, Berkeley; University of California, Berkeley
New Keynesian model with Calvo pricing, positive steady-state inflation, zero lower bound on interest rates, Taylor rule monetary policy, risk premium shocks, government spending shocks, cost-push shocks, technology shocks, and monetary policy
intermediate goods firms, final goods firms
intermediate goods firms: monopolistic competition with Calvo pricing; final goods firms: perfect competition with CES aggregator
Baseline New Keynesian model with Calvo pricing, ZLB, Taylor rule
Authors identify this as the baseline optimal inflation rate in section 3.2
Risk premium shock persistence rho_q = 0.96
Risk premium shock volatility sigma_q = 0.0035
Model uncertainty - expected utility over parameter draws
Endogenous price stickiness with maximum sensitivity beta_pi = 1
Model with downward nominal wage rigidity
Price level targeting with moderate response phi_p = 0.25
The Inflation Tax in a Real Business Cycle Model
University of Rochester; University of California, Los Angeles
Real business cycle model with indivisible labor and employment lotteries, augmented with money via cash-in-advance constraint on consumption; technology shocks drive fluctuations; money supply follows constant or autoregressive growth rate rul
constant returns to scale technology with Cobb-Douglas production function
Optimal money supply rule where g equals beta (Friedman rule), quarterly constraint
Authors identify g=beta as the Pareto optimal allocation against which welfare costs are measured
Zero inflation steady state, quarterly constraint, g=1.0
10 percent annual inflation steady state, quarterly constraint, g=1.024
100 percent annual inflation steady state, quarterly constraint, g=1.19
legit_high_inflation: Cooley-Hansen 1989 high-inflation steady state
400 percent annual inflation steady state, quarterly constraint, g=1.41
Optimal money supply rule where g equals beta (Friedman rule), monthly constraint
Zero inflation steady state, monthly constraint, g=1.0
10 percent annual inflation steady state, monthly constraint, g=1.008
100 percent annual inflation steady state, monthly constraint, g=1.06
400 percent annual inflation steady state, monthly constraint, g=1.12
Banco de Portugal, Universidade Católica Portuguesa
Monetary general equilibrium model with money in the utility function (Sidrauski-Brock type) and explicit transactions technology equivalence, analyzing optimal inflation tax under second-best taxation without lump-sum taxes
linear production technology with unitary coefficients
Friedman rule optimal: zero nominal interest rate implies deflation at rate of time preference; first best solution
Ramsey second best: Friedman rule optimal when satiation point m*=infinity or m*=kc (unitary elasticity); zero nominal interest rate
Main theoretical result of the paper: Proposition 1 establishes Friedman rule as optimal in second best Ramsey problem
Numerical calibration with Calvo-Guidotti utility function; elasticity of m* less than one; money-income ratio inconsistent with US data
Numerical calibration with Calvo-Guidotti utility recalibrated to fit US money demand; semielasticity=7; optimal nominal interest rate considerably smaller
Numerical calibration with v2 utility function; k=1 satiation level; optimal nominal interest rate smaller than 0.1%
Numerical calibration with v2 utility function; k=0.4 satiation level; optimal nominal interest rate less than 1%
On the Optimality of the Friedman Rule with Heterogeneous Agents and Nonlinear Income Taxation
Fundação Getulio Vargas; Massachusetts Institute of Technology and National Bureau of Economic Research
Money-in-the-utility-function model with heterogeneous agents differing in labor productivity, subject to nonlinear income taxation under private information about productivity. Nests shopping-time and cash-credit models as special cases.
consumption, work effort, real money balances
Friedman rule is Pareto efficient when combined with nondecreasing labor income tax; zero nominal interest rate implies deflation at rate of time preference, but paper focuses on R=0 as optimal
Main theoretical result of the paper: Proposition 1 establishes Friedman rule (R=0) is Pareto efficient with positive income taxation
Welfare cost calculation baseline with tau=0 (no income tax); shopping-time model following Lucas (2000)
Welfare cost calculation with tau=0.35 (35% income tax); shopping-time model
Welfare cost calculation with tau=0.50 (50% income tax); shopping-time model
Domestic and international determinants of optimal inflation measure selection for rule-based monetary policy during an energy price shock
Budapest University of Economics and Business, Hungary
International Review of Economics and Finance
Semi-structural New Keynesian model with energy sector decomposition, asymmetric price dynamics, central bank credibility dynamics, credit market with lending spreads, and international spillovers via exchange rate and risk premium channels
asymmetric price adjustment with competition intensity parameter; marginal cost driven by output gap and real exchange rate
central bank with credibility dynamics affecting inflation expectations; foreign economy with monetary policy spillovers
Core inflation targeting in CB reaction function
CPI expectations targeting in CB reaction function
Core inflation expectations targeting in CB reaction function
Authors identify core inflation expectations as yielding highest average Economic Utility Function value
Hybrid inflation measure (90% core, 10% noncore) in CB reaction function
Passive CB policy (no response to energy shock for 4 quarters)
Monetary Policy and the Drifting Natural Rate of Interest
Sciences Po - OFCE; European Central Bank
New Keynesian model with bonds-in-the-utility function providing liquidity benefits, permanent shocks to productivity growth rate following a bounded unit root process, and time-varying long-run natural rate of interest
monopolistic competition with Calvo-style price rigidities
Unconditional mean under optimal commitment policy with time-varying long-run natural rate
Table 2 reports unconditional means under optimal policy, described as main result in Section 4
Optimal price-level trend under price-level targeting rule
Constant price-level targeting rule (Eggertsson-Woodford) with zero drift
The Equity Premium, Long-Run Risks to R-Star, and Asymmetric Optimal Monetary Policy
New Keynesian DSGE model with Epstein-Zin recursive preferences, long-run productivity risk (time-varying conditional expectation of productivity growth), vintage capital with heterogeneous exposure to aggregate productivity shocks, Calvo price
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition aggregating intermediate goods
Ramsey Optimal Policy with High Equity Premium (RA=5.5, RP=4.5%)
Authors' baseline calibration with high equity premium matching financial data, described as main result throughout paper
Inflation Targeting Policy with High Equity Premium (RA=5.5, RP=4.5%)
Ramsey Optimal Policy with Low Equity Premium (RA=2, RP=0.5%)
Inflation Targeting Policy with Low Equity Premium (RA=2, RP=0.5%)
Welfare-maximizing monetary policy under parameter uncertainty
Edge, R. M., Laubach, T., & Williams, J. C. (2010)
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
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
Optimal monetary policy with staggered wage and price contracts
Erceg, C.J., Henderson, D.W., Levin, A.T.
New Keynesian DSGE model with both staggered nominal wage contracts (Calvo-style) and staggered nominal price contracts (Calvo-style), monopolistic competition in both labor and product markets, production and employment subsidies to eliminate
monopolistically competitive firms, output aggregator
monopolistically competitive firms with Cobb-Douglas production; output aggregator combines differentiated goods with Dixit-Stiglitz technology
labor aggregator combines differentiated labor services from households with Dixit-Stiglitz technology
Optimal monetary policy with staggered wage and price contracts; steady-state inflation indexed, welfare maximization over variances
Authors derive optimal policy as benchmark throughout paper; steady-state inflation is the indexation rate which is treated as given/zero in deviations
Staggered price contracts with completely flexible wages; strict price inflation targeting achieves Pareto optimum
Strict price inflation targeting rule; baseline parameters with staggered wage and price contracts
Strict wage inflation targeting rule; baseline parameters with staggered wage and price contracts
Strict output gap targeting rule; baseline parameters with staggered wage and price contracts
Hybrid targeting rule responding to price inflation and output gap; baseline parameters
Hybrid targeting rule responding to price inflation and wage inflation; baseline parameters
Downward wage rigidity and optimal steady-state inflation
European Central Bank; Universitat de Girona
Extension of Erceg-Henderson-Levin (2000) model with asymmetric menu costs for wage setting to capture downward nominal and real wage rigidity; heterogeneous agents with idiosyncratic productivity shocks
intermediate goods firms: monopolistic competition with Rotemberg price adjustment costs; final goods firms: perfect competition
US1 (PSID) baseline calibration with downward nominal and real wage rigidity
US1 is the primary US dataset discussed; baseline calibration presented in Table 5
US2 (CPS) baseline calibration with downward nominal and real wage rigidity
Germany baseline calibration with downward nominal and real wage rigidity
Portugal baseline calibration with downward nominal and real wage rigidity
Belgium baseline calibration with downward nominal and real wage rigidity
Finland baseline calibration with downward nominal and real wage rigidity
Optimal interest rate rules, asset prices, and credit frictions
Universitat Pompeu Fabra; IGIER, Universita' Bocconi
New Keynesian DSGE model with Carlstrom-Fuerst agency cost framework featuring endogenous credit frictions, monopolistic competition, Rotemberg sticky prices, and countercyclical external finance premium generated by linking mean distribution o
final goods producers, intermediate goods producers
final goods producers: perfect competition with CES aggregation; intermediate goods producers: monopolistic competition with Rotemberg quadratic price adjustment costs
Entrepreneurs: risk-neutral, more impatient than households (discount factor beta*gamma), engage in risky investment technology, face asymmetric information problem with lenders requiring costly state verification; Financial intermediaries: per
Strict inflation targeting (IT) rule: pt = 0 all t, steady-state annualized inflation 4%
Authors state strict inflation stabilization always attains highest welfare; IT rule is welfare-optimal
Taylor rule with inflation only (TRI): fp=1.5, fy=0, fq=0
Standard Taylor rule (TR): fp=1.5, fy=0.5, fq=0
TRI with negative asset price response: fp=1.5, fy=0, fq=-0.2
TRI with positive asset price response: fp=1.5, fy=0, fq=0.2
TR with negative asset price response: fp=1.5, fy=0.5, fq=-0.2
Ramsey Monetary Policy with Capital Accumulation and Nominal Rigidities
New Keynesian model with capital accumulation, Rotemberg quadratic price adjustment costs, monopolistic competition, and Ramsey optimal monetary policy under fiscal incompleteness (no profit tax available)
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; final firms: Dixit-Stiglitz aggregation
Golden rule constrained optimal inflation with baseline elasticity of demand epsilon=6
Baseline calibration with epsilon=6 corresponding to 20% markup as described in Section 3.3
Unconstrained long-run optimal policy (Ramsey steady state)
Golden rule constrained optimal inflation with low elasticity of demand (high markup)
Golden rule constrained optimal inflation with high elasticity of demand (low markup)
Ramsey monetary policy with labor market frictions
Goethe University Frankfurt, Kiel IfW, CEPREMAP
New Keynesian model with Rotemberg price adjustment costs and Mortensen-Pissarides matching frictions in the labor market, featuring Nash wage bargaining, search externalities, and congestion externalities
monopolistic competition with Rotemberg quadratic price adjustment costs, constant returns to scale matching technology for hiring
Long-run optimal Ramsey policy with sticky prices and matching frictions; zero average net inflation rate in steady state
Authors derive this as the main long-run optimal policy result in Section 4, equation (26)
Optimal Ramsey inflation volatility with bargaining power B=0.2 (below Hosios condition x=0.4)
Optimal Ramsey inflation volatility with bargaining power B=0.6
Optimal Ramsey inflation volatility with bargaining power B=0.9 (above Hosios condition x=0.4)
Labor Selection, Turnover Costs, and Optimal Monetary Policy
Johann Wolfgang Goethe University; Kiel Institute for the World Economy; Friedrich-Alexander-University Erlangen-Nürnberg
New Keynesian DSGE model with labor selection process, labor turnover costs (hiring and firing costs), Nash bargained wages (collective bargaining), and Rotemberg price adjustment costs. Features idiosyncratic match-specific productivity shocks
intermediate goods firms: perfectly competitive, linear production in labor; wholesale firms: monopolistic competition with Rotemberg price adjustment costs; retailers: perfect competition, Dixit-Stiglitz aggregation
Optimal Ramsey inflation volatility with firing costs at 60% of productivity, elasticity of substitution ν=10
Benchmark calibration with firing costs at 60% of productivity as stated in Section 3.1 and Table 5
Optimal Ramsey inflation volatility with firing costs at 40% of productivity, elasticity of substitution ν=10
Optimal Ramsey inflation volatility with firing costs at 50% of productivity, elasticity of substitution ν=10
Optimal Ramsey inflation volatility with firing costs at 70% of productivity, elasticity of substitution ν=10
Optimal Ramsey inflation volatility with firing costs at 80% of productivity, elasticity of substitution ν=10
Optimal Ramsey inflation volatility with firing costs at 60% of productivity, elasticity of substitution ν=4
Optimal Ramsey inflation volatility with firing costs at 40% of productivity, elasticity of substitution ν=4
Optimal Ramsey inflation volatility with firing costs at 50% of productivity, elasticity of substitution ν=4
Optimal Ramsey inflation volatility with firing costs at 70% of productivity, elasticity of substitution ν=4
Optimal Ramsey inflation volatility with firing costs at 80% of productivity, elasticity of substitution ν=4
The Ramsey Steady State under Optimal Monetary and Fiscal Policy for Small Open Economies
Medium-scale DSGE model for small open economies with Calvo price and wage stickiness, habit persistence in consumption, investment adjustment costs, capital utilization costs, cash-in-advance constraint, portfolio adjustment costs for domestic
non-tradable goods firms, tradable goods firms, imported goods retailers, exported goods retailers
monopolistic competition with Calvo pricing in all sectors, local currency pricing for imports and exports
Baseline scenario with complete set of instruments (consumption, labor, capital taxes), Calvo prices αn=0.6, αm=0.6
Authors describe as baseline scenario in Table 4.1 line 1 and Section 4.1
Flexible prices αn=0, αm=0, complete set of instruments - Friedman rule
Full indexation κx=κn=κm=κxp=1, complete set of instruments - Friedman rule
No consumption taxes, baseline scenario αn=0.6, αm=0.6
No consumption taxes, flexible prices αn=0, αm=0 - Friedman rule
No consumption taxes, full indexation κx=κn=κm=κxp=1 - Friedman rule
Consumption and income taxes only (no separate capital/labor taxes), baseline αn=0.6, αm=0.6
Consumption and income taxes only, flexible prices αn=0, αm=0
Single income tax only (no consumption tax, no separate capital/labor taxes), baseline αn=0.6, αm=0.6
Single income tax only, near-flexible prices αn=0.01, αm=0.01
The Costs and Benefits of Going from Low Inflation to Price Stability
Harvard University; National Bureau of Economic Research
Reducing Inflation: Motivation and Strategy
Two-period overlapping generations model with capital income taxation, housing sector, money demand (MIU), and government budget constraint integrating monetary and fiscal policy. Analyzes welfare costs of inflation through tax-inflation intera
Cobb-Douglas production function with constant returns to scale; competitive factor markets
Price stability target (measured inflation 2%, true inflation 0%); benchmark case with saving elasticity 0.4 and deadweight loss parameter 0.4
Authors describe this as the benchmark case with most plausible parameter values (ηsr=0.4, λ=0.4)
Low inflation baseline (measured inflation 4%, true inflation 2%); comparison point for welfare analysis
Price stability target; saving elasticity 0 (interest-inelastic saving), deadweight loss parameter 0.4
Price stability target; saving elasticity 1.0 (high interest elasticity), deadweight loss parameter 0.4
Price stability target; saving elasticity 0.4, deadweight loss parameter 1.5 (higher distortionary cost)
Price stability target; saving elasticity 0, deadweight loss parameter 1.5
Price stability target; saving elasticity 1.0, deadweight loss parameter 1.5
Optimal monetary–fiscal policy in the euro area liquidity crisis
New Keynesian DSGE model with liquidity shock in sovereign bonds market, cash-in-advance constraint where money and fraction of government bonds are accepted for purchases, zero lower bound on interest rates, and consolidated government-central
monopolistic competition, Calvo pricing with indexation to inflation target
central bank sets interest rate on reserves and money supply, consolidated budget constraint with treasury
Optimal monetary-fiscal policy (OMFP) with full commitment; inflation target set to zero in baseline calibration
Baseline calibration with inflation target Pi=1 (zero inflation) as stated in Table 1 and Section 3
Optimal monetary-fiscal policy (OMFP) with full commitment; inflation target set to 2% (ECB implicit target) for quantitative exercise
Full inflation-targeting (IT) combined with optimal fiscal policy (OFP); inflation perfectly stabilized at target
Nominal GDP targeting (NGDPT) combined with optimal fiscal policy (OFP); inflation almost completely stabilized
Optimal inflation with corporate taxation and financial constraints
Finocchiaro, D., Lombardo, G., Mendicino, C., Weil, P. (2018)
Sveriges Riksbank; Bank for International Settlements; European Central Bank; Université Libre de Bruxelles – SBSEM and ECARES, and CEPR
DSGE model with corporate taxation featuring deductibility of interest payments and investment expenditures, combined with collateral constraints à la Kiyotaki-Moore where firms use capital as collateral for borrowing
intermediate firms: use capital and labor with Cobb-Douglas technology, face credit constraints; final firms: buy intermediate inputs in competitive market, face Rotemberg price adjustment costs in sticky price version
Baseline flexible price model with corporate taxation and collateral constraints
Authors describe as main quantitative result in Section 4
Model with Rotemberg sticky prices and monopolistic competition
Full deductibility of interest and investment (ϰr=1, ϰδ=1)
No monopolistic distortion, 3 months price adjustment frequency
Full monopolistic distortion (100%), 3 months price adjustment frequency
Model without lump-sum taxes, with labor tax τw=0.33
Flexible price model without lump-sum taxes, with labor tax τw=0.27
Trade-off theory of debt with defaults, quarterly default frequency 6.4%
Output hysteresis and optimal monetary policy
Federal Reserve Bank of Boston; University of California, Davis
New Keynesian model with Schumpeterian endogenous growth through R&D investment and creative destruction, featuring staggered wage setting (Calvo), monopolistically competitive intermediate goods sectors, and innovation by entrepreneurs
consumption, labor, real money balances (bonds in utility)
final goods firms, intermediate goods monopolists, R&D entrepreneurs
final goods firms: perfect competition with CES aggregation; intermediate goods firms: monopolistic competition with limit pricing; entrepreneurs: invest in R&D to innovate
wage unions: monopolistically competitive labor unions set wages on staggered Calvo basis
Optimal commitment policy away from ZLB - strict inflation targeting implements optimal policy with zero wage inflation gap
Authors describe optimal commitment policy away from ZLB as the benchmark optimal policy in Section 3.2
Optimal commitment policy at ZLB - permanent output gap of -0.74% with lower-for-longer interest rates
Optimal discretionary policy (MPE) at ZLB - permanent output gap of -4.05% due to hysteresis bias
Strict output hysteresis targeting rule at ZLB - eliminates permanent output gap (0%)
Nominal wage level targeting rule at ZLB - permanent output gap of -2.26%
Nominal GDP level targeting rule at ZLB - permanent output gap of -2.51%
Optimal commitment with higher weight on growth rate gap - eliminates permanent output gap (0%)
Pro-cyclical emissions, real externalities, and optimal monetary policy
Prometeia, Italy; Deutsche Bundesbank, Germany
New Keynesian DSGE model augmented with emission externality where carbon dioxide emissions negatively affect productivity through a damage function, creating pro-cyclical emissions that interact with nominal rigidities
Calvo pricing with fraction theta unable to adjust prices; production generates one unit of emissions per unit of output; emissions reduce productivity through damage function
Optimal monetary policy under discretion with emission externality, baseline calibration with stock pollutant
Column (3) Stock pollutant model is the main four-equation model discussed throughout the paper as baseline
Standard New Keynesian model without emission externality (gamma=0)
Three-equation model with flow pollutant
The New Neoclassical Synthesis and the Role of Monetary Policy
Federal Reserve Bank of Richmond and University of Virginia; University of Virginia, NBER, and Federal Reserve Bank of Richmond
New Neoclassical Synthesis model combining RBC core with monopolistic competition, Calvo-style staggered price setting, and money demand; analyzes optimal monetary policy for markup stabilization and price stability
monopolistically competitive intermediate goods firms, competitive final goods aggregator
intermediate firms face constant elasticity demand, set prices subject to Calvo-style staggered adjustment, markup over marginal cost; final goods aggregator uses CES technology
Near-zero inflation minimizes average markup distortion and relative price distortions in NNS model with Calvo pricing
Authors explicitly recommend near-zero inflation targeting as optimal policy throughout paper; Figure 3 shows markup minimized near zero
Comparison case showing 10% inflation raises average markup from 1.10 to 1.1044
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
Optimal Ramsey monetary policy under QC (Quadratic-Cubic) approximation with costly price and wage adjustment, asymmetric wage adjustment costs
QC approximation is the main contribution of the paper, providing n=2 order accurate optimal policy compared to standard LQ
Optimal Ramsey monetary policy under LQ (Linear-Quadratic) approximation with costly price and wage adjustment
Taylor rule policy with estimated coefficients
QC approximation with log utility (gamma=1), quadratic price adjustment costs only, no wage adjustment costs
QC approximation with quadratic price and wage adjustment costs (symmetric, no asymmetry)
Endogenous Persistence and the Performance of Inertial Targeting Rules
New Keynesian DSGE model with habit formation in consumption generating intrinsic persistence in output gap, and Calvo pricing with price indexation to past inflation generating intrinsic persistence in inflation. Model features monopolisticall
monopolistically competitive price setters with Calvo-type nominal price rigidity and indexation to past inflation
Precommitment optimal policy with model-consistent loss function; baseline calibration with h=0.9, omega=0.8
Precommitment policy represents the optimal benchmark against which all discretionary targeting rules are compared; baseline calibration in Table 2
Pure discretionary policy with model-consistent loss function; baseline calibration
Inflation targeting discretionary policy with model-consistent loss function; optimal lambda_IT=0.10
Nominal income growth targeting discretionary policy with model-consistent loss function; optimal lambda_NIGT=0.02
Speed limit targeting discretionary policy with model-consistent loss function; optimal lambda_SLT=0.07
Price level targeting discretionary policy with model-consistent loss function; optimal lambda_PLT=0.15
Money, liquidity, and the structure of production
University of Mississippi; Texas Tech University
Lagos-Wright monetary search model with competing media of exchange (money and bonds), endogenous period of production (time-to-build), and endogenous firm entry/exit with idiosyncratic productivity shocks following geometric Brownian motion
consumption of search good, consumption of general good, labor, real money balances, bonds
firms choose optimal duration of production (period of production), face idiosyncratic productivity shocks, entry and exit decisions with fixed costs
central bank grows money supply at constant rate through lump sum transfers
Friedman Rule optimal: π = -ρ where ρ is the pure rate of time preference; eliminates opportunity cost of holding money and ensures real interest rate equals rate of time preference
Authors derive Friedman Rule as optimal policy in both centralized and decentralized markets; main theoretical result of the paper
Optimal monetary policy in a new Keynesian model with job search
Department of Economics, National Tsing-Hua University, Hsin-Chu 30013, Taiwan
New Keynesian DSGE model with Mortensen-Pissarides job search and matching frictions, Nash wage bargaining, CES matching function, and Calvo price stickiness. Extended model includes endogenous capital accumulation with adjustment costs and var
intermediate goods producers, retailers, final goods producers
intermediate goods producers: use labor with search frictions; retailers: monopolistic competition with Calvo pricing; final goods producers: perfect competition with CES aggregation
Optimal monetary policy under baseline calibration with search frictions, benchmark model
Base case optimal policy in benchmark model, Table 4 Panel A
Zero-inflation policy replicating flexible-price equilibrium, benchmark model
Optimal policy with lower bargaining power z=0.02, benchmark model
Optimal policy with higher bargaining power z=0.75, benchmark model
Optimal policy with lower elasticity of substitution in matching e=0.2, benchmark model
Optimal policy with higher elasticity of substitution in matching e=0.8, benchmark model
Optimal policy with higher unemployment benefit b=0.28, benchmark model
Optimal policy with zero unemployment benefit b=0, benchmark model
Optimal policy with Cobb-Douglas matching e=1, benchmark model
Optimal policy under baseline calibration, extended model with capital accumulation
Zero-inflation policy replicating flexible-price equilibrium, extended model with capital
Optimal policy with low investment adjustment cost a=0.01, extended model
Optimal policy with high investment adjustment cost a=4, extended model
Optimal policy with lower bargaining power z=0.02, extended model
Optimal policy with higher bargaining power z=0.75, extended model
Optimal policy with lower elasticity of substitution in matching e=0.2, extended model
Optimal policy with higher elasticity of substitution in matching e=0.8, extended model
Optimal policy with zero unemployment benefit b=0, extended model
Optimal policy with Cobb-Douglas matching e=1, extended model
Bonds with transactions service and optimal Ramsey policy
Citic Securities International; Australian National University
Standard New Keynesian DSGE model augmented with government bonds that provide transactions/liquidity services via a modified cash-in-advance constraint, creating an endogenous interest-rate spread between liquid government bonds and illiquid p
monopolistic competition with Rotemberg quadratic price adjustment costs; constant elasticity of demand
Baseline sticky-price economy with liquid bonds (SP), Ramsey optimal policy, steady state gross inflation normalized to 1.042
Authors describe SP model as baseline full model in Table 1 and use it for main quantitative analysis
Sticky-price economy without liquid bonds (SP*), Ramsey optimal policy, steady state gross inflation 1.040
Flexible-price economy with liquid bonds (FP), Ramsey optimal policy, steady state gross inflation 1.017
Flexible-price economy without liquid bonds (FP*), Ramsey optimal policy, steady state gross inflation 0.969
The welfare cost of inflation under imperfect insurance
Heterogeneous agent model with idiosyncratic employment risk, precautionary money demand for consumption smoothing, no insurance markets, liquidity constraints preventing borrowing
Zero inflation benchmark economy used for welfare comparison
Zero inflation serves as the welfare benchmark against which 5% and 10% inflation costs are measured
5% annual inflation economy; welfare cost is 0.92% of GNP compared to zero inflation
10% annual inflation economy; welfare cost is 1.07% of GNP compared to zero inflation
10% inflation with higher risk aversion (sigma=5); welfare cost is 1.52% of income
10% inflation with beta=0.997 (6% annual discount rate); welfare cost is 1.3% of income
10% inflation with beta=0.999 (2% annual discount rate); welfare cost is 1.1% of income
Optimal Credit, Monetary, and Fiscal Policy under Occasional Financial Frictions and the Zero Lower Bound
International Journal of Central Banking
New Keynesian model with Gertler-Kiyotaki style financial frictions featuring occasionally binding financial constraint on banks, zero lower bound on nominal interest rates, government budget constraint, credit policy (asset purchases), monetar
consumption, labor, money holdings, deposits
intermediate good producers, capital producers
intermediate good producers: monopolistic competition with Calvo pricing; capital producers: perfect competition with adjustment costs
Financial intermediaries (banks) face agency problem leading to occasionally binding financial constraint on leverage
Ramsey equilibrium under rational expectations with both ZLB and financial constraint
Main Ramsey equilibrium result under rational expectations reported in Table 2 row (c)
Ramsey equilibrium under perfect foresight with both ZLB and financial constraint
Laissez-faire equilibrium under rational expectations with Taylor rule
Laissez-faire equilibrium under perfect foresight with Taylor rule
Optimal Monetary Policy in a Small Open Economy With Habit Persistence
Small open economy New Keynesian model with habit persistence (internal and external) in consumption, Calvo staggered price setting, home bias in consumption, complete international asset markets, and labor income taxation
Optimal monetary policy with σ=η=1, no habit persistence (b=0)
Baseline case without habit persistence showing domestic price stability is optimal when σ=η=1
Optimal monetary policy with σ=4/3, η=3/4, no habit persistence (b=0)
Ramsey optimal with time-varying tax, external habit b=0.5, σ=η=1
Ramsey optimal with time-varying tax, external habit b=0.5, σ=4/3, η=3/4
Ramsey optimal with time-varying tax, internal habit b=0.5, σ=η=1
Ramsey optimal with time-varying tax, internal habit b=0.5, σ=4/3, η=3/4
Ramsey optimal with time-invariant tax, external habit b=0.5, σ=η=1
Ramsey optimal with time-invariant tax, external habit b=0.5, σ=4/3, η=3/4
DPI policy with time-invariant tax, external habit b=0.5, σ=η=1
DPI policy with time-invariant tax, external habit b=0.5, σ=4/3, η=3/4
Ramsey optimal with time-invariant tax, internal habit b=0.5, σ=η=1
Ramsey optimal with time-invariant tax, internal habit b=0.5, σ=4/3, η=3/4
DPI policy with time-invariant tax, internal habit b=0.5, σ=η=1
DPI policy with time-invariant tax, internal habit b=0.5, σ=4/3, η=3/4
Khan, A., King, R. G., & Wolman, A. L. (2003)
Federal Reserve Bank of Philadelphia; Boston University, Federal Reserve Bank of Richmond and NBER; Federal Reserve Bank of Richmond
New Keynesian DSGE model with Calvo-style staggered price setting, monopolistic competition among intermediate goods producers, and transactions costs for converting wealth into consumption (money economizes on credit costs). Households face ti
intermediate goods producers: monopolistic competition with staggered price adjustment (Calvo-style with time-varying hazard); retailers: perfect competition with CES aggregation
Benchmark model with short-sample money demand estimates, optimal Ramsey policy steady state
Authors describe this as the benchmark result in Section 6.2
Long-sample money demand specification, optimal Ramsey policy steady state
Short-sample money demand, wedge of monetary inefficiency eliminated
Short-sample money demand, time costs eliminated
Short-sample money demand, wedge and time costs both eliminated
Short-sample money demand, markup fixed at zero inflation level
Short-sample money demand, decreased demand elasticity (epsilon=6)
Short-sample money demand, increased price flexibility (expected duration 3.8 quarters)
Long-sample money demand, wedge eliminated
Long-sample money demand, time cost eliminated
Long-sample money demand, markup fixed at zero inflation level
Long-sample money demand, decreased demand elasticity (epsilon=6)
Long-sample money demand, increased price flexibility
The rise of market power and Ramsey‐optimal policy implications
New Keynesian model with Rotemberg sticky prices, transaction cost money demand, distortionary labor taxes, and government debt; examines Ramsey-optimal fiscal and monetary policy under varying markup calibrations reflecting documented rise in
monopolistic competition with Rotemberg quadratic price adjustment costs
Baseline SGU calibration with markup 1.2
Intermediate markup calibration with markup 1.4
Empirically relevant high markup calibration with markup 1.57 based on De Loecker et al. (2020)
Authors emphasize this as the empirically relevant calibration based on De Loecker et al. (2020) evidence; main contribution of the paper
An Analytical Approach to the Welfare Cost of Business Cycles and the Benefit from Activist Monetary Policy
Dynamic general equilibrium model with Epstein-Zin-Weil non-state-separable preferences allowing separation of risk aversion from intertemporal elasticity of substitution, Cobb-Douglas production with adjustment costs of investment, and sticky
Cobb-Douglas production function with capital and labor, adjustment costs of investment
Optimal monetary policy in sticky-price model implements flexible-price allocation; stabilization benefit is trivial (0.00009% of productivity for random walk case)
Main result of the paper: optimal monetary policy delivers trivial welfare gain despite large welfare cost of business cycles
Optimal monetary policy in sticky-price model with trend-stationary productivity; stabilization benefit is 0.00008% of productivity
How much inflation is necessary to grease the wheels?
Federal Reserve Board; University of Montreal
Small-scale DSGE model with asymmetric (linex) nominal wage adjustment costs allowing downward wage rigidity, Rotemberg quadratic price adjustment costs, monopolistic competition in goods and labor markets, Taylor-type monetary policy rule, and
monopolistic competition, decreasing returns to scale production, Rotemberg quadratic price adjustment costs
Optimal grease inflation under Ramsey policy with asymmetric wage adjustment costs
Authors' main result: optimal grease inflation computed as difference between asymmetric and quadratic cost models under Ramsey policy
Mean gross inflation under Ramsey policy with asymmetric wage adjustment costs
Mean gross inflation under Ramsey policy with quadratic (symmetric) wage adjustment costs
Optimal inflation target under strict inflation targeting regime with asymmetric wage adjustment costs
Monetary policy when wages are downwardly rigid: Friedman meets Tobin
Korea University; University of Montreal
New Keynesian DSGE model with asymmetric (linex) nominal wage adjustment costs capturing downward nominal wage rigidity, Rotemberg quadratic price adjustment costs, and transaction cost function for money demand
intermediate firms: monopolistic competition with differentiated goods; final firms: aggregate consumption bundle
Ramsey optimal policy with asymmetric wage adjustment costs (downward nominal wage rigidity)
Authors state this is the Ramsey policy that maximizes social welfare, main result of the paper
Ramsey optimal policy with quadratic (symmetric) wage adjustment costs
Optimal inflation target under strict targeting policy with downward nominal wage rigidity
Optimal inflation under no uncertainty (deterministic steady state)
Extreme Events and Optimal Monetary Policy
New Keynesian model with sticky prices and wages, where shock innovations follow a generalized extreme value (GEV) distribution to capture fat tails and asymmetry in productivity and monetary policy shocks
Ramsey optimal policy with GEV distributed shocks (extreme events)
Peak of unconditional welfare function shown in Figure 8, main result of the paper
How Should Central Banks Reduce Inflation? — Conceptual Issues
Economic Review, Federal Reserve Bank of Kansas City
perfect competition, constant returns to scale
Optimal inflation target under commitment with linear Phillips curve; zero inflation minimizes loss function
Main theoretical result of the paper: optimal inflation target is zero under commitment (Section 3.2)
Optimal inflation target under discretion with linear Phillips curve; zero inflation is optimal
Optimal inflation target with nonlinear Phillips curve under commitment; zero inflation remains optimal
Optimal inflation target with nonlinear Phillips curve under discretion; zero inflation remains optimal
(Re)Evaluating recent macroeconomic policy in the US
Kirsanova, T., Leith, C., Machado, C., Ribeiro, A.P.
University of Glasgow; Polytechnic of Porto; University of Porto
New Keynesian DSGE model with strategic monetary-fiscal policy interactions, distortionary taxation, geometric maturity structure for government debt, Markov-switching policy regimes, and zero lower bound constraint on interest rates
Calvo price setting with backward-looking rule of thumb pricing
Baseline forecast 2026 with estimated policy regimes and stochastic shocks; inflation expected 1.5% above 2% target
Main forecast result discussed in Section 8 as baseline outcome for 2026
Counterfactual: early lift-off from ZLB in 2021Q3; inflation reduced by 2pp for one year but converges to baseline by 2026
Counterfactual: removing lingering Covid-era shocks in 2022Q1; inflation 1pp lower than baseline by 2026
Counterfactual: removing Trump-Biden fiscal stimulus; inflation 0.5pp lower than baseline by 2026
Shadow interest rate analysis ZLB2008: Conservative Fed would have set rates to -4% in 2008Q4
Shadow interest rate analysis ZLB2008: Less Conservative Fed would have set rates to -2.5% in 2008Q4
Counterfactual ZLB2008: Conservative fiscal authority enables Less Conservative monetary authority to lift off ZLB from 2014
Counterfactual ZLB2008: Trump-Biden scale fiscal stimulus applied in 2008; temporary lift-off but return to ZLB
Counterfactual ZLB2008: Price Level Targeting from 2009Q1; unable to prevent ZLB constraint, temporary lift-off but return
Optimal Monetary Policy under Rigid Wages and Decreasing Returns
Beiträge zur Jahrestagung des Vereins für Socialpolitik
New Keynesian model with search and matching labor market frictions, real wage rigidity, and decreasing returns to scale in production. Features Rotemberg price adjustment costs, large firms with multiple employees, and a wage rule rigid with r
retail firms: perfect competition with CES aggregation; wholesale firms: monopolistic competition with search frictions and Rotemberg price adjustment costs
Ramsey optimal policy with rigid wages and decreasing returns to scale - standard deviation of inflation relative to productivity
Main result of the paper combining rigid wages with decreasing returns under Ramsey policy
Zero-inflation policy with rigid wages and decreasing returns to scale
Taylor rule policy with rigid wages and decreasing returns to scale - standard deviation of inflation relative to productivity
Ramsey optimal policy with rigid wages and constant returns to scale - standard deviation of inflation relative to productivity
Zero-inflation policy with rigid wages and constant returns to scale
Ramsey optimal policy with flexible wage (simple wage zeta=1) and decreasing returns - standard deviation of inflation relative to productivity
Ramsey optimal policy with optimal wage and decreasing returns - standard deviation of inflation relative to productivity
Monetary policy rules in the open economy: effects on welfare and business cycles
University of Bonn; Centre for Economic Policy Research
Small open economy DSGE model with staggered Calvo price setting, pricing-to-market behavior, incomplete international financial markets (bonds only), physical capital with adjustment costs, and shocks to domestic productivity, world interest r
intermediate goods firms, final goods firms, importers
intermediate goods firms: monopolistic competition with Calvo pricing and pricing-to-market; final goods firms: perfect competition; importers: monopolistic competition with Calvo pricing
central bank sets interest rate according to Taylor-style rule; foreign sector provides exogenous world interest rate, world inflation, and UIP shocks
small open economy (calibrated to Japan, Germany, UK)
Optimized Taylor-style rule with sticky prices, PTM, four simultaneous shocks (productivity, world interest rate, UIP, world inflation)
Authors present this as the baseline optimized policy rule result with all four shocks combined
Flexible prices variant with four simultaneous shocks
Exchange rate peg with sticky prices, four simultaneous shocks
Exchange rate peg with sticky prices, no UIP shocks (productivity, world interest rate, world inflation shocks only)
Producer currency pricing (PCP) variant with optimized rule, four simultaneous shocks
Welfare-Maximizing Operational Monetary and Tax Policy Rules
ECARES, Universite Libre de Bruxelles; University of Paris XII; Centre for Economic Policy Research
New Keynesian DSGE model with Calvo staggered price setting, capital accumulation, monopolistic competition, proportional income tax, nominal one-period government bonds, and exogenous government purchases. Model features optimized monetary (Ta
intermediate goods firms: monopolistic competition with Calvo staggered price setting; final goods firms: perfect competition with CES aggregation
Baseline sticky prices with nominal debt, optimized policy with simultaneous productivity and government purchases shocks
Authors describe as baseline model in Section 3.1; Column 1 represents the main sticky-prices specification with both shocks
Sticky prices with nominal debt, optimized policy with only government purchases shocks
Sticky prices with nominal debt, richer policy rules responding to GDP and deficit
Sticky prices with nominal debt, simpler policy rules where tax rate only responds to debt
Flexible prices with nominal debt, optimized policy
Kollmann 2008 row 5: value 13.24 is SD of inflation, not optimal π — exclude or relabel
Flexible prices with indexed (real) debt, optimized policy; nominal interest rate cannot be uniquely determined
Optimal simple objectives for monetary policy when banks matter
Laureys, L., Meeks, R., Wanengkirtyo, B.
Bank of England and CfM; International Monetary Fund and CAMA; Bank of England
Medium-scale New Keynesian DSGE model with financial intermediaries (banks) following Gertler and Karadi (2011), featuring bank balance sheet constraints, moral hazard friction where bankers can divert resources, and endogenous leverage ratios.
intermediate goods producers, capital producers, retailers
intermediate goods producers: perfect competition with Cobb-Douglas production; capital producers: perfect competition with investment adjustment costs; retailers: monopolistic competition with Calvo pricing
Banks owned by households, run by bankers who can divert fraction of assets; incentive compatibility constraint binds; bankers exit with probability (1-sigma) each period; leverage ratio endogenously determined
Strict inflation targeting (lambda=0, omega=0)
Optimal dual mandate (lambda=1.005, omega=0)
Optimal extended mandate with loan-deposit spread (lambda=0.475, omega=1.397)
Authors describe this as the optimal extended mandate which is the main contribution of the paper
Alternative optimal dual mandate with spread only (lambda=0, omega=9.601)
Optimal dual mandate with output growth (lambda=0.400, omega=0)
Optimal extended mandate with output growth and loan-deposit spread (lambda=0.350, omega=5)
Optimal extended mandate with output gap and leverage (lambda=0.500, omega=0.010)
Optimal extended mandate with interest rate smoothing (lambda=0.400, rho=17)
Optimal monetary policy in a New Keynesian model with habits in consumption
University of Glasgow; University of Glasgow; Università di Milano-Bicocca
New Keynesian model with external consumption habits (both superficial and deep), Rotemberg price adjustment costs, and optimal monetary policy analysis under commitment and discretion
Benchmark steady state gross inflation rate calibrated to US data 1960:Q1-2010:Q4
Authors describe this as the benchmark calibration used throughout the paper for optimal policy analysis
Alternative lower inflation target with ZLB constraint binding
Strategic Complementarities and Optimal Monetary Policy
Levin, A. T., Lopez-Salido, J. D., & Yun, T.
Board of Governors of the Federal Reserve System
New Keynesian DSGE model with strategic complementarities via quasi-kinked demand (Kimball aggregator) and firm-specific factors (fixed capital/labor at firm level), Calvo staggered price setting, money-in-utility, and Ramsey optimal monetary p
intermediate firms: monopolistic competition with Calvo pricing; final goods firm: perfect competition with Kimball aggregator
Optimal steady-state inflation under quasi-kinked demand (ψ=-2), minimizes relative price distortion
Zero inflation minimizes relative price distortion and is optimal under Ramsey policy in the baseline NK model with strategic complementarities
Optimal steady-state inflation under quasi-kinked demand (ψ=-8), high curvature case
Optimal steady-state inflation under firm-specific inputs (αf=1/3)
Optimal steady-state inflation under firm-specific inputs (αf=1/2)
Optimal steady-state inflation combining quasi-kinked demand (ψ=-2) and firm-specific inputs (αf=0.5)
Optimal inflation under timeless perspective commitment in stochastic economy
Optimal steady-state inflation under Dixit-Stiglitz preferences (no real rigidities, ψ=0)
Optimal Monetary Policy Across Behavioural New Keynesian Models
Deak, S., Levine, P., Mirza, A., Pham, S.
University of Exeter; University of Surrey; University of Birmingham; International School - Vietnam National University, Hanoi
Four competing NK models: benchmark RE, Euler learning with simple adaptive expectations (EL-SAE), Euler learning with generalized adaptive expectations (EL-GAE), and Gabaix bounded rationality with myopia (MYP). Models feature Calvo price stic
wholesale firms: perfect competition with Cobb-Douglas production; retail firms: monopolistic competition with Calvo pricing
Optimized Simple Rule without ZLB constraint, Π=1.0 (zero net inflation)
Optimized Simple Rule without ZLB constraint, Π=1.005 (annualized 2.5%)
Optimized Simple Rule without ZLB constraint, Π=1.008 (empirical average)
Optimal ZLB Mandate, RE model, p_zlb=0.05, Π*=1.0026
Optimal ZLB Mandate, MYP model, p_zlb=0.05, Π*=1.0083
Optimal ZLB Mandate, EL-GAE model, p_zlb=0.05, Π*=1.014
Optimal ZLB Mandate, Pool of models (robust rule), p_zlb=0.05, Π*=1.0084
Authors describe this as the robust optimal rule using optimal pooling weights across models
Optimal ZLB Mandate, RE model, p_zlb=0.096, Π*=1.0016
Optimal ZLB Mandate, MYP model, p_zlb=0.096, Π*=1.006
Optimal ZLB Mandate, EL-GAE model, p_zlb=0.096, Π*=1.01
Optimal ZLB Mandate, Pool of models (robust rule), p_zlb=0.096, Π*=1.0048
Ghent University and IMFS, Goethe University Frankfurt
New Keynesian model with endogenous firm entry, cash-in-advance constraint, preset wages, monopolistic competition in goods and labor markets, and labor requirement for firm startups
intermediate firms: monopolistic competition with Dixit-Stiglitz aggregation; final goods firm: perfect competition
labor packer: aggregates differentiated labor types under monopolistic competition
Friedman Rule optimal under both flexible and sticky wages; zero net nominal interest rate implies deflation at rate of time preference, but paper focuses on R=1 as optimal policy
Proposition 2 states Friedman Rule (R=1) is optimal for all dates and states; this is the paper's main monetary policy result
Friedman Rule under flexible wages; allocations given by equations 36-38; nominal indeterminacy for price level
Two-state numerical example with sticky wages; productivity shock Z takes values 1.5 and 0.5; optimal policy achieves higher welfare than flexible wages
Two-state numerical example with sticky wages; entry cost F takes values 0.003 and 0.005; optimal policy achieves higher welfare than flexible wages
Federal Reserve Bank of Richmond; National Taiwan University
New Keynesian DSGE model augmented with inventories that facilitate sales following Bils and Kahn (2000), where inventory stock enters the Dixit-Stiglitz aggregator and affects firm demand
monopolistic competition with quadratic price adjustment costs, inventories facilitate sales
Ramsey optimal policy with inventories, steady state gross inflation π = 1.0086 quarterly
Authors describe Ramsey policy with inventories as their main contribution and benchmark; steady state inflation calibrated to average post-war US quarterly inflation
Ramsey optimal policy without inventories (standard NK model), full inflation stabilization at steady state
Full inflation stabilization policy with inventories
Optimized contemporaneous Taylor rule with inventories, smoothing ρ=1, ψ1=3, ψ2=0
Optimized contemporaneous Taylor rule without inventories (standard NK), smoothing ρ=1, ψ1=3, ψ2=0
Ramsey policy with inventories, alternative calibration μ=0.8
Ramsey policy with inventories, alternative calibration δ=0.05
Ramsey policy with inventories, alternative calibration η=5 (inelastic labor supply)
Ramsey policy with inventories, alternative calibration θ=21 (lower markup)
Sidrauski model with money-in-utility and McCallum-Goodfriend transactions technology model; extensions include elastic labor supply with distortionary income taxation and government consumption
Friedman rule: deflation at rate of real interest, nominal interest rate equals zero
Friedman rule (r=0) is identified as optimal monetary policy throughout the paper; welfare cost is zero at this point
Zero inflation benchmark corresponding to 3% nominal interest rate
10% inflation scenario corresponding to approximately 13% nominal interest rate; welfare cost approximately 1.3% of income (log-log)
Optimal policy with income taxation and elastic labor supply; optimal interest rate approximately 0.03-0.04% depending on labor elasticity
Time-Consistent Management of a Liquidity Trap with Government Debt
New Keynesian model with monopolistic competition, Rotemberg quadratic price adjustment costs, distortionary labor income tax, long-term government debt with exponentially decaying payoffs, and zero lower bound on nominal interest rates. Optima
consumption, public good consumption, labor (disutility)
intermediate firms: monopolistic competition with quadratic price adjustment costs; final firms: perfect competition with CES aggregation
Risky steady state with ZLB occasionally binding, long-term debt (baseline calibration)
Authors describe this as the baseline calibration with ZLB risk and long-term debt matching US data
Deterministic steady state without ZLB risk
Risky steady state without ZLB constraint (No ZLB case)
Risky steady state with one-period debt (ρ=0)
Risky steady state with lower demand shock variance (σ=0.30)
Banco de Mexico; University of Milano-Bicocca; Griffith University
DSGE model with Limited Asset Market Participation (LAMP) where constrained agents hold only money while unconstrained agents have full access to financial markets and own firms. Includes alternative money demand specifications: classical trans
intermediate firms, final good firms, labor packers
intermediate firms: monopolistic competition with Rotemberg price adjustment costs; final good firms: perfect competition; labor packers: perfect competition aggregating differentiated labor
Classical money demand with LAMP, theta=0.8, b/y=0.6
Baseline LAMP model matching US wealth Gini index with classical money demand specification
Classical money demand, representative agent (theta=0), b/y=0.6
Classical money demand with LAMP, theta=0.8, b/y=0.8
Cash/credit technology with LAMP, theta=0.8, b/y=0.6
Cash/credit technology, representative agent (theta=0), b/y=0.6
Cash/credit technology with LAMP, theta=0.8, b/y=0.8
Infrequent trading (N=3) with LAMP, theta=0.8, b/y=0.6
Infrequent trading (N=3), representative agent (theta=0), b/y=0.6
Infrequent trading (N=3) with LAMP, theta=0.8, b/y=0.8
Classical money demand with LAMP, distinct capital/labor taxes, theta=0.8, b/y=0.6
Classical money demand, distinct capital/labor taxes, representative agent (theta=0), b/y=0.6
Classical money demand with LAMP, distinct capital/labor taxes, theta=0.8, b/y=0.8
Cash/credit technology with LAMP, distinct capital/labor taxes, theta=0.8, b/y=0.6
Infrequent trading (N=3) with LAMP, distinct capital/labor taxes, theta=0.8, b/y=0.6
Revisiting the optimal inflation rate with downward nominal wage rigidity: The role of heterogeneity
New Keynesian DSGE model with heterogeneous workers differing in labor productivity, asymmetric wage adjustment costs capturing downward nominal wage rigidity (DNWR), Calvo price stickiness with non-zero steady-state inflation, job changes with
Central bank follows Taylor rule responding to inflation and output gap
Baseline heterogeneous agent model with DNWR, Calvo pricing, Taylor rule
Authors' main result for optimal inflation rate in baseline HA model calibrated to U.S. data
Representative agent model with asymmetric smooth wage adjustment cost, Calvo pricing, Taylor rule
Lower trend productivity growth g by 0.5 percentage points (g=0.9%)
Higher trend productivity growth g by 0.5 percentage points (g=1.9%)
Fixed cost only specification (Fagan and Messina 2009 style)
Rebating adjustment costs through lump-sum transfer
Lower idiosyncratic labor productivity shock sigma by 50%
Higher idiosyncratic labor productivity shock sigma by 50%
Lower Frisch labor supply elasticity (eta=0.3)
Higher Frisch labor supply elasticity (eta=1.0)
Lower labor demand elasticity (theta_w=2)
Higher labor demand elasticity (theta_w=5)
Higher responsiveness to inflation in Taylor rule (phi_pi=3)
Higher responsiveness to output gap in Taylor rule (phi_y=0.5)
Wage growth rule instead of inflation targeting
Quarterly Review of Economics and Finance
New Keynesian model with fair wage where workers' effort depends on change in nominal wage; Calvo price stickiness; capital accumulation; labor-augmented productivity growth
Zero effort effect (γ=0), high price stickiness (ξd=0.75), low growth (zA=1.02)
Low effort effect (γ=1/3), high price stickiness (ξd=0.75), low growth (zA=1.02)
Middle effort effect (γ=1/2), high price stickiness (ξd=0.75), low growth (zA=1.02)
Authors describe γ=1/2 as benchmark case throughout the paper (Section 3.4, Section 4)
High effort effect (γ=1.0), high price stickiness (ξd=0.75), low growth (zA=1.02)
Low effort effect (γ=1/3), medium price stickiness (ξd=0.5), low growth (zA=1.02)
Middle effort effect (γ=1/2), medium price stickiness (ξd=0.5), low growth (zA=1.02)
High effort effect (γ=1.0), medium price stickiness (ξd=0.5), low growth (zA=1.02)
Low effort effect (γ=1/3), high price stickiness (ξd=0.75), middle growth (zA=1.04)
Low effort effect (γ=1/3), high price stickiness (ξd=0.75), high growth (zA=1.06)
κ=0, middle effort effect (γ=1/2), high price stickiness
κ=0.1, middle effort effect (γ=1/2), high price stickiness
κ=0.2, middle effort effect (γ=1/2), high price stickiness
κ=0.5, middle effort effect (γ=1/2), high price stickiness
κ=1, middle effort effect (γ=1/2), high price stickiness - deflation optimal
Banco Central de Reserva del Perú, Bank for International Settlements, CENTRUM Católica
Standard New Keynesian model extended with oil as a nonproduced input in a CES production function, allowing for low substitutability between labor and oil. Includes staggered price-setting (Calvo), monopolistic competition, and proportional sa
intermediate firms: monopolistic competition with CES production function (labor and oil inputs); final firms: perfect competition aggregating intermediate goods
Optimal unconstrained monetary policy response to oil shock, baseline ψ=0.2
Baseline calibration with ψ=0.2 representing benchmark low substitutability case
Optimal unconstrained monetary policy response to oil shock, ψ=0.4
Optimal unconstrained monetary policy response to oil shock, ψ=1 (Cobb-Douglas, no trade-off)
Optimal noninertial plan response to oil shock, baseline ψ=0.2
Optimal noninertial plan response to oil shock, ψ=0.4
Optimal noninertial plan response to oil shock, ψ=1 (Cobb-Douglas, no trade-off)
Optimal Simple Monetary and Fiscal Rules under Limited Asset Market Participation
Lancaster University; University of Milano-Bicocca
New Keynesian DSGE model with limited asset market participation (rule-of-thumb consumers), internal consumption habits, sticky prices (Calvo), sticky wages (Calvo), and fiscal policy rules (lump-sum taxes reacting to output gap, real income gr
unions set wages with Calvo wage stickiness; rule-of-thumb consumers who do not participate in financial markets and consume their entire labor income net of taxes
Zero inflation steady state with efficient production subsidy eliminating markup distortions
Paper assumes efficient steady state with zero inflation as baseline for welfare analysis; optimal policy minimizes deviations from this steady state
Department of Economics, University of Quebec at Montreal
Medium-scale New Keynesian DSGE with trend inflation, trend growth from neutral and investment-specific technology, roundabout production structure with intermediate inputs, Calvo price and wage stickiness, habit formation, investment adjustmen
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition CES aggregator
labor aggregators: aggregate differentiated labor from households using CES technology
Pre-1984 baseline with trend growth, welfare cost of going from 0 to 4.75 percent trend inflation
Authors describe pre-1984 baseline case as main calibration in Section 4.1
Post-1984 baseline with trend growth, welfare cost of going from 0 to 2.29 percent trend inflation
Pre-1984 without trend growth, welfare cost of going from 0 to 4.75 percent trend inflation
Post-1984 without trend growth, welfare cost of going from 0 to 2.29 percent trend inflation
Pre-1984 alternative calibration with trend growth
Post-1984 alternative calibration with trend growth
Pre-1984 alternative calibration without trend growth
Post-1984 alternative calibration without trend growth
Scale Economies, the Value of Time, and the Demand for Money: Longitudinal Evidence from Firms
constant returns to scale production using labor
Friedman Rule: optimal deflation equals real interest rate (3% annual)
Authors derive Friedman Rule as optimal policy throughout paper; 3% real rate is baseline calibration
Optimal and simple monetary policy rules with zero floor on the nominal interest rate
Banco de España and Universitat Pompeu Fabra
Standard New Keynesian sticky price model with an explicit occasionally binding zero lower bound constraint on the nominal interest rate, comparing optimal commitment policy, discretionary policy, and simple instrument rules
Optimal monetary policy with commitment under zero lower bound constraint
Paper focuses on optimal policy with commitment as main benchmark; abstract states commitment reduces welfare losses to one-tenth of discretion
Discretionary optimal monetary policy under zero lower bound constraint
Constant price level targeting rule under zero lower bound constraint
Taylor rule responding to inflation under zero lower bound constraint
Taylor rule with interest rate smoothing under zero lower bound constraint
Optimal monetary policy and financial stability in a non-Ricardian economy
Working papers (Dipartimento di scienze sociali ed economiche)
DSGE model with Discontinuous Asset Market Participation (DAMP) where agents stochastically cycle between active and inactive states in asset markets. Active agents face finite planning horizons (perpetual-youth structure) and enter insurance c
Inflation Targeting regime in DAMP economy - zero inflation target
Optimal policy under Discretion in DAMP economy
Authors describe optimal discretionary policy as main result showing price stability is not optimal
Optimal policy under Full Commitment in DAMP economy
Flexible Inflation Targeting under Discretion in DAMP economy with cost-push shocks
Flexible Inflation Targeting under Commitment in DAMP economy with cost-push shocks
Flexible Inflation Targeting under Discretion ignoring financial-wealth effects
Flexible Inflation Targeting under Commitment ignoring financial-wealth effects
Optimal Monetary Policy Rules and House Prices: The Role of Financial Frictions
Banca d'Italia, Economic Outlook and Monetary Policy Directorate
Two-sector New Keynesian model with housing sector and financial frictions. Households divided into patient (savers) and impatient (borrowers) agents with different discount factors. Impatient households face perpetually binding collateral cons
consumption services (nondurable consumption and housing stock), labor supply in both sectors
intermediate goods: monopolistic competition with Calvo pricing; final goods: perfect competition aggregating differentiated intermediates
Social welfare maximizing optimal simple rule with housing demand and LTV shocks; baseline calibration with 20% borrowers and 80% LTV ratio
Main result of the paper: social-welfare-maximizing optimal simple rule under baseline calibration
Saver's welfare maximizing rule; approximates inflation targeting regime
Frictionless model (representative agent, no borrowing constraints); optimal inflation volatility is zero
Huggett (1993) incomplete markets model extended to open economy with nominal long-term bonds, costly inflation (Rotemberg pricing), and heterogeneous households facing uninsurable idiosyncratic income risk
intermediate firms: monopolistic competition with Rotemberg quadratic price adjustment costs; final firms: perfect competition with Dixit-Stiglitz aggregation
Risk-neutral foreign investors pricing nominal bonds at world real interest rate
small open economy (calibrated to UK, Sweden, Baltic states)
Ramsey optimal initial inflation at time-0 under baseline calibration
Authors describe this as the baseline Ramsey optimal policy result in Section 4.3
Ramsey optimal long-run steady-state inflation under baseline calibration
Optimal long-run inflation in the limit as household discount rate equals world real interest rate (rho approaches r-bar)
Optimal inflation with instantaneous bonds (delta approaches infinity)
Ramsey optimal initial inflation with 1 quarter average bond duration
Ramsey optimal initial inflation with 1 year average bond duration
Ramsey optimal initial inflation with zero net foreign asset position (pure domestic redistributive motive)
Exogenous Information, Endogenous Information and Optimal Monetary Policy
Einaudi Institute for Economics and Finance; Northwestern University
New Keynesian model with rational inattention where price setters in firms choose how much attention to allocate to aggregate conditions (aggregate technology and desired markup), replacing Calvo price stickiness with information frictions base
Dixit-Stiglitz differentiated products, firms set prices with limited attention to aggregate conditions, production function with decreasing returns to labor
Proposition 3, Proposition 5, Proposition 6
Optimal monetary policy under endogenous information structure - complete price stabilization is optimal in response to both technology shocks and markup shocks
Main result of the paper: when decision-makers in firms choose attention allocation, complete price stabilization (zero inflation) is optimal for all shock types
Optimal monetary policy under exogenous information structure in response to technology shocks - complete price stabilization is optimal
Optimal monetary policy under exogenous information structure in response to markup shocks - complete price stabilization is NOT optimal; positive inflation response to markup shocks
Optimal Inflation, Monetary Integration, and Asymmetric Sticky Prices
Cardiff University; Institute of Economics, Polish Academy of Sciences
Two-country general equilibrium model with cash-in-advance constraints for money demand, Calvo staggered price setting, monopolistic competition, and analysis of monetary union versus local currencies regimes with asymmetric price stickiness ac
consumption of home goods, consumption of foreign goods, labor
Calvo staggered price setting, linear production function with labor as sole input, firms sell domestically and abroad
Monetary authority commits to welfare-maximizing rate of inflation; in local currencies each country has own monetary authority, in monetary union a common monetary authority maximizes joint welfare
Local currencies, flexible prices (λ=0), imperfect competition, open economy
Local currencies, sticky prices (λ=0.32), imperfect competition, open economy
Authors describe λ=0.32 as yearly equivalent of quarterly 0.75, standard stickiness value in quantitative literature
Monetary union, flexible prices (λ=0), imperfect competition
Monetary union, symmetric sticky prices (λ=0.32), imperfect competition
Local currencies, flexible prices, perfect competition (closed economy equivalent θ=1)
Epstein-Zin preferences and their use in macro-finance models: Implications for optimal monetary policy
Darracq Pariès, M., & Loublier, A. (2010)
New Keynesian DSGE model with Epstein-Zin recursive preferences, capital accumulation, Calvo price and wage stickiness, habit formation, and investment adjustment costs
intermediate firms, final firms, capital producers
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition; capital producers: investment adjustment costs
Optimal Ramsey policy with standard CRRA preferences (sigma=1)
Baseline CRRA case (sigma=1) serves as benchmark for Epstein-Zin comparison
Optimal Ramsey policy with Epstein-Zin preferences (sigma=10)
Optimal Ramsey policy with Epstein-Zin preferences (sigma=50)
Optimal Ramsey policy with Epstein-Zin preferences (sigma=100)
Optimal long-run inflation and the New Keynesian model
Neapolis University Pafos, Business School
Standard New Keynesian model extended with rule-of-thumb price setters à la Galí and Gertler (1999), where a fraction of firms use backward-looking pricing rules based on lagged inflation rather than forward-looking optimization
monopolistic competition with Calvo staggered price setting; fraction (1-ω) forward-looking optimizers, fraction ω rule-of-thumb backward-looking price setters
Optimal long-run inflation under timeless-perspective commitment with rule-of-thumb price setters, maximum value across parameter ranges (alpha=0.3-0.85, omega=0-0.7)
Authors describe this as the maximum optimal long-run inflation target from their calibration exercise in Section 3.1
Standard New Keynesian model without rule-of-thumb price setters (omega=0), optimal commitment policy
Flexible inflation targeting and labor market inefficiencies
New Keynesian DSGE model with search and matching frictions in the labor market, Nash wage bargaining, Calvo price stickiness in retail sector, and congestion externalities where the Hosios condition is not satisfied
wholesale firms: perfectly competitive with search frictions; retail firms: monopolistically competitive with Calvo pricing
Optimal policy under efficient allocation (Hosios condition satisfied, ξ=ε), zero inflation is optimal
Authors describe this as the baseline efficient allocation case where price stability is optimal
Optimal policy under inefficient allocation (ε-ξ=0.4, workers bargaining power=0.7), positive inflation optimal to correct unemployment
Optimal policy with ε-ξ=0.4, productivity shock σz=1, standard deviation of inflation reported
Optimal policy with ε-ξ=0.1, productivity shock σz=1, small steady state distortion
Optimal policy with ε-ξ=0 (Hosios satisfied), bargaining shock σξ=1
Optimal policy with ε-ξ=0.4, bargaining shock σξ=1, large steady state distortion
Complete price stability policy (zero inflation targeting)
Welfare-based optimal monetary policy with unemployment and sticky prices: A linear-quadratic framework
New Keynesian DSGE model with Mortensen-Pissarides search and matching frictions in the labor market, Calvo sticky prices in retail sector, Nash wage bargaining with stochastic bargaining shares, and home production for unemployed workers
consumption (market goods plus home production)
wholesale firms: competitive market, CRS production with labor, search frictions for hiring; retail firms: monopolistic competition, Calvo pricing, CRS transformation of wholesale goods
Welfare-based optimal commitment policy with Hosios condition satisfied; zero inflation is optimal when steady state is efficient
Authors derive welfare-based optimal policy showing price stability (zero inflation) is nearly optimal; this is the benchmark Ramsey solution
Standard NK loss function minimizing inflation and consumption gap under commitment
Standard loss in inflation and unemployment gap with lambda=0.0035 under commitment
Standard loss in inflation and unemployment gap with lambda=0.0521 under commitment
Welfare-based optimal commitment policy with EU calibration (lower separation rate, higher unemployment)
Expectation traps and Neo-Fisherian policy
Three-period overlapping generations New Keynesian model with borrowing constraints, heterogeneous agents (young, middle-aged, old), incomplete markets, and non-rational subjective expectations formation including adaptive learning and extrapol
monopolistically competitive final goods firms
monopolistic competition with linear production technology in labor; Calvo or Rotemberg price rigidity
High inflation steady state at target inflation pi_H = pi* = 1.02 (2% annual)
Full employment steady state described as the intended equilibrium by monetary policy
Low inflation steady state pi_L = 1/R* at ZLB expectation trap equilibrium
An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy
Massachusetts Institute of Technology; Princeton University
New Keynesian DSGE model with Calvo staggered price-setting, monopolistic competition, representative household optimization, decision lags for both prices and quantities, and interest-rate feedback rule for monetary policy
monopolistically competitive firms (differentiated goods producers)
Calvo staggered price-setting with fraction 1-alpha adjusting each period; fraction gamma of adjusters post prices immediately, fraction 1-gamma must wait one quarter; Dixit-Stiglitz demand
Constrained-optimal policy minimizing welfare loss L subject to interest rate variance constraint and zero lower bound
Authors identify this as the constrained-optimal policy that balances inflation stabilization with interest rate volatility constraints given the zero lower bound
Minimum-L policy achieving complete inflation stabilization (price stability) without ZLB constraint
Optimal fiscal and monetary policy under imperfect competition
Rutgers University; University of Pennsylvania
Flexible-price production economy with imperfect competition (monopolistic competition), transaction costs for money demand, distortionary labor income taxes, and nominal non-state-contingent government debt. No capital. Government finances exo
monopolistic competition with Dixit-Stiglitz aggregation; linear production technology in labor; flexible prices
Perfect competition (markup=1), Ramsey optimal policy
Imperfect competition with markup=1.1, Ramsey optimal policy
Imperfect competition with markup=1.2 (baseline calibration), Ramsey optimal policy
Authors calibrate baseline markup to 1.2 based on Basu and Fernald (1997) estimates; described as baseline in Table 1
Imperfect competition with markup=1.35, Ramsey optimal policy
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
Flexible prices and perfect competition (y=0 and Z=-infinity), Friedman rule optimal
Flexible prices and imperfect competition (y=0, Z=-6), deviation from Friedman rule due to monopoly profits
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
Optimal Fiscal and Monetary Policy in a Medium-Scale Macroeconomic Model
Duke University, CEPR, and NBER; Duke University and NBER
Medium-scale DSGE model with sticky prices (Calvo), sticky wages (Calvo with indexation), money demand by households (transaction costs), cash-in-advance constraint on firm wage bill, investment adjustment costs, variable capacity utilization,
consumption, labor (leisure), real money balances
intermediate firms: monopolistic competition with Calvo pricing; final goods: perfect competition with CES aggregation
Labor union supplies labor monopolistically to a continuum of labor markets with Calvo wage setting and indexation to past inflation
Ramsey steady state with income tax regime, profit taxed at same rate as capital income, no indexation in product prices, full indexation in wages
Baseline calibration with income tax regime as described in Section 3.1 and Table 6.2 line 1
Ramsey steady state with full price indexation (χ=1), profit taxed at same rate as capital income
Ramsey steady state with full price indexation (χ=1), no government transfers (n=0), Friedman rule emerges
Ramsey steady state with no price indexation (χ=0), no government transfers (n=0)
Ramsey steady state with profits taxed at 100% (τπ=1)
Ramsey steady state with profits taxed at 100% and fixed capacity utilization (γ2 increased by factor of 10^5)
Ramsey steady state under income tax regime (τh=τk=τy)
Ramsey dynamics under income taxation, baseline calibration with sticky prices and wages
Ramsey dynamics with flexible prices and wages (α=0, ξ=0), no transfers
Ramsey dynamics with sticky prices (α=0.6) and flexible wages (ξ=0), no transfers
Ramsey dynamics with flexible prices (α=0) and sticky wages (ξ=0.64), no transfers
Ramsey dynamics with sticky prices (α=0.6) and sticky wages (ξ=0.64), no transfers
Ramsey dynamics with flexible prices and wages (α=0, ξ=0), baseline transfers
Ramsey dynamics with sticky prices (α=0.6) and flexible wages (ξ=0), baseline transfers
Ramsey dynamics with flexible prices (α=0) and sticky wages (ξ=0.64), baseline transfers
Ramsey dynamics with sticky prices (α=0.6) and sticky wages (ξ=0.64), baseline transfers
Ramsey dynamics with sticky prices (α=0.6) and higher wage stickiness (ξ=0.87), baseline transfers
Ramsey dynamics with no indexation in prices or wages (χ=0, λ=0)
Ramsey dynamics with full price indexation (χ=1) and no wage indexation (λ=0)
Ramsey dynamics with no price indexation (χ=0) and full wage indexation (λ=1)
Ramsey dynamics with full indexation in both prices and wages (χ=1, λ=1)
Optimal Inflation Stabilization in a Medium-Scale Macroeconomic Model
Medium-scale New Keynesian DSGE model with Calvo sticky prices and wages with indexation, habit formation in consumption, investment adjustment costs, variable capacity utilization, money-in-utility for households, cash-in-advance constraint on
intermediate firms: monopolistic competition with Calvo pricing; final goods firms: perfect competition with CES aggregation
labor unions set wages monopolistically in segmented labor markets with Calvo wage stickiness
Baseline Ramsey optimal inflation with α=0.8 (price stickiness 5 quarters), lump-sum taxes
Authors describe α=0.8 as baseline calibration from ACEL estimation; main result discussed throughout paper
Ramsey optimal inflation with α=0.5 (price stickiness 2 quarters), close to Friedman rule
Ramsey optimal inflation at lower bound of price stickiness estimates (2 quarters), close to Friedman rule
Ramsey optimal inflation with α=0.6 (CEE estimate of price stickiness)
Ramsey optimal inflation with optimal distortionary taxes, α=0.8
Ramsey optimal inflation with optimal distortionary taxes, α=0.6
Ramsey optimal inflation with full price indexation χ=1 (Friedman rule)
Optimal simple and implementable monetary and fiscal rules
New Keynesian DSGE model with Calvo sticky prices, capital accumulation, money demand via cash-in-advance constraints for households and working capital constraints for firms, monopolistic competition, distortionary taxation, and fiscal policy
intermediate goods firms: monopolistic competition with Calvo pricing; final goods firms: perfect competition aggregating differentiated goods
Ramsey-optimal policy in cashless economy with lump-sum taxes and passive fiscal policy
Ramsey policy serves as the benchmark for policy evaluation throughout the paper
Inflation targeting policy in cashless economy
Ramsey-optimal policy in monetary economy with cash-in-advance constraints
Ramsey steady-state inflation with lump-sum taxation and fiscal feedback rule
Ramsey steady-state inflation with distortionary income taxation
Ramsey steady-state inflation in monetary economy reflecting tradeoff between price stability and Friedman rule
Multiple model variants analyzed: basic money demand models (MIU, CIA, shopping-time, transactions-cost), sticky-price models (Calvo-Yun with capital accumulation), models with foreign demand for domestic currency, models with downward nominal
Friedman rule with lump-sum taxation, money demand friction only
Friedman rule with distortionary taxation, constant returns to scale (alpha=1)
Decreasing returns to scale (alpha=0.70), untaxed profits
Monopolistic competition with 25% markup
Foreign demand for domestic currency, baseline calibration yf=0.06
Higher foreign demand for domestic currency yf=0.1
Foreign demand for domestic currency with lump-sum taxes
Sticky prices with production subsidies, price stability optimal
Authors identify zero inflation as Ramsey optimal and Pareto efficient in sticky-price model
Sticky prices with money demand, Friedman rule vs price stability tradeoff
Medium-scale estimated DSGE model, Ramsey optimal policy
Downward nominal wage rigidity, Kim and Ruge-Murcia (2009) result
Neo-Keynesian model with Calvo-Yun price staggering augmented to allow for exogenous quality improvement in consumption goods, with labor subsidy to eliminate monopolistic distortion
monopolistically competitive firms with linear production function and Calvo price staggering
Ramsey optimal policy when nonquality-adjusted (sticker) prices are sticky and statistical agency does not correct quality bias
Main theoretical result of the paper: optimal inflation target is zero when sticker prices are sticky, contradicting conventional wisdom
Ramsey optimal policy when nonquality-adjusted (sticker) prices are sticky and statistical agency corrects quality bias; optimal inflation equals negative rate of quality improvement
Ramsey optimal policy when quality-adjusted (hedonic) prices are sticky and statistical agency does not correct quality bias; optimal inflation equals rate of quality improvement
Ramsey optimal policy when quality-adjusted (hedonic) prices are sticky and statistical agency corrects quality bias
Foreign Demand for Domestic Currency and the Optimal Rate of Inflation
Standard New Keynesian model augmented with foreign demand for domestic currency; households face transaction costs that depend on money velocity; government levies income taxes and issues bonds; foreign agents hold domestic currency creating s
competitive firms using labor as only input with concave production function F(h)
Foreign agents demand domestic currency; foreign demand for real domestic currency is function of foreign aggregate absorption and domestic nominal interest rate
No foreign demand for domestic currency (cf = 0), Friedman rule optimal
Baseline calibration with foreign demand for domestic currency (cf = 0.06)
Authors describe as baseline calibration matching US currency held abroad
Higher foreign demand for domestic currency (cf = 0.1)
High interest elasticity of money demand (B = 0.0376)
Lump-sum taxes and zero government spending (gt = 0)
Growth or the Gap? Which Measure of Economic Activity Should be Targeted in Interest Rate Rules?
Medium-scale New Keynesian DSGE model with sticky prices and wages (Calvo), endogenous capital accumulation, habit formation, investment adjustment costs, variable capital utilization, trend productivity growth, trend inflation, and multiple sh
consumption, labor, capital, investment, bonds
intermediate goods firms, final good firm, employment agency
intermediate firms: monopolistic competition with Calvo pricing; final good firm: perfect competition; employment agency: competitive aggregator of differentiated labor
Baseline optimal Taylor rule in basic NK model without capital; zero trend inflation assumed
Authors describe as baseline optimized policy rule in Section 2.1
Baseline optimal Taylor rule in medium scale DSGE model with trend growth and zero trend inflation
Medium scale model with no trend growth; zero trend inflation
Medium scale model with positive trend inflation of 2 percent annualized
Medium scale model with positive trend inflation of 2 percent annualized but no trend growth
Optimal fiscal and monetary policy with sticky prices
Cash-credit good model with sticky prices (Calvo-style fraction of firms posting prices before shock realization), monopolistic competition in intermediate goods, distortionary income taxation, and nominal non-state-contingent government debt.
cash good consumption, credit good consumption, leisure
intermediate good firms, final good firms
intermediate good firms: monopolistic competition with sticky and flexible price setters; final good firms: perfect competition with CES aggregation
Baseline flexible price model with Friedman Rule optimal
Baseline sticky price model with 5% sticky price firms, alpha=1, mu=1.05
Authors describe as baseline sticky price calibration in Section 7.1
Flexible price model with alpha=0.64 (diminishing marginal product of labor)
Sticky price model with 5% sticky price firms and alpha=0.64
Flexible price model with mu=1.01 (near perfect substitution)
Sticky price model with 5% sticky price firms and mu=1.01
Optimal interest rate rule in a DSGE model with housing market spillovers
Department of Economics, Virginia Tech, Blacksburg, VA 24061, United States
DSGE model with housing market spillovers featuring patient and impatient households, collateral constraints tied to housing wealth, sticky prices in consumption sector, sticky wages in both consumption and housing sectors, and two production s
consumption sector firms, housing sector firms, retailers
retailers: monopolistic competition with Calvo pricing; consumption sector: combines capital and labor; housing sector: combines capital, labor, and land
Optimal contemporaneous interest rate rule (I) minimizing loss function with housing market spillovers
Authors present optimal rule (I) as main result in Table 2, comparing estimated vs optimal policy parameters
Optimal backward-looking interest rate rule (II) minimizing loss function
Optimal forward-looking interest rate rule (III) minimizing loss function
Organizational Learning and Optimal Fiscal and Monetary Policy
Standard cash-credit good monetary Ramsey model augmented with Rotemberg sticky prices and organizational learning-by-doing (LBD) mechanism in production technology where firms accumulate organizational capital through past production
intermediate firms: monopolistic competition with Dixit-Stiglitz, learning-by-doing organizational capital accumulation; final firms: perfect competition with CES aggregation
Sticky price with LBD - steady state (main model)
Authors' main model combining sticky prices and learning-by-doing, central contribution of the paper
Flexible prices without LBD - dynamic simulation mean
Flexible prices with LBD - dynamic simulation mean
Sticky prices without LBD - dynamic simulation mean
Sticky prices with LBD - dynamic simulation mean (main model)
Learning-by-doing and the optimal Ramsey interest rate
Imperfectly competitive Ramsey model with learning-by-doing (LBD) embedded in firms' technology through organizational capital accumulation as a by-product of production
consumption (cash goods, credit goods), labor
intermediate firms: monopolistic competition with learning-by-doing and organizational capital; final firms: perfect competition with CES aggregation
No Learning (θ = 0), baseline imperfectly competitive Ramsey model without LBD
5% Learning (θ = 0.07), Ramsey model with learning-by-doing
10% Learning (θ = 0.14), baseline calibration with learning-by-doing
Authors state θ = 0.14 as baseline case in Section 3, consistent with Cooper and Johri (2002)
15% Learning (θ = 0.20), high learning rate approaching Friedman rule
Financial System and Bank Examination Department, Bank of Japan
New Keynesian model extended with heterogeneous loan interest rate contracts, where different types of private banks provide differentiated loan rate contracts to firms requiring external finance, incorporating a cost channel mechanism
firms need external finance for production, half financed by loan type R and half by loan type S
heterogeneous private banks providing differentiated loan rate contracts with flexible loan rates
Theoretical derivation of optimal monetary policy rule with heterogeneous loan contracts; no numerical optimal inflation rate reported
Paper derives optimal policy rule analytically but does not report a numerical optimal inflation rate
FRB/US large-scale macroeconometric model augmented with counter-cyclical fiscal policy rule that activates when Taylor rule falls below 2 percent threshold, comprising personal tax cuts, government consumption purchases, and transfers
Inflation target without fiscal stimulus, passive fiscal policy
Inflation target with recent fiscal stimulus (beta=0.7)
Authors describe recent stimulus scenario as main policy-relevant finding
Pledgability and Liquidity: A New Monetarist Model of Financial and Macroeconomic Activity
New York University Stern School of Business; University of Wisconsin-Madison, FRB Minneapolis, FRB Chicago, and NBER
New Monetarist model with pledgability constraints on assets (bonds, housing, capital, money) serving as collateral to secure credit in a decentralized market (KM) alongside a frictionless centralized market (AD). Incorporates limited commitmen
consumption, housing services, leisure, portfolio of assets (bonds, equity, housing, capital, money)
CRS production function f(k,l) with capital and labor; competitive home builders with convex cost function for housing production
Optimal inflation rate under baseline calibration with taxes; Mundell-Tobin effect offsets tax distortion on capital
Authors state 'the calibration implies the optimal inflation rate is 3.5 percent' as their main welfare result in baseline model
Friedman rule (i=0) benchmark; zero lower bound on nominal interest rate
Optimal inflation under alternative calibration; negative but above Friedman rule; KM effect dominates
Optimal inflation without taxes (tau_a = tau_l = 0); Friedman rule is optimal
The optimal inflation rate and firm-level productivity growth
New Keynesian sticky-price model augmented with firm-level productivity growth, heterogeneous firms by age, and exogenous firm entry and exit. Firms improve productivity over their lifetime, creating systematic movement through the productivity
monopolistic competition, Calvo pricing, firm-level productivity growth at rate g, heterogeneous productivity by firm age
Two-sector model with calibrated parameters, labor income tax offsets static markup, beta=0.995
Authors present Proposition 3 as main quantitative result with calibrated parameters
Two-sector model, beta approaching 1, labor income tax zero
Two-sector model, beta=0.995, labor income tax zero
Two-sector model, beta=0.975, labor income tax zero
One-sector model, optimal inflation equals firm-level productivity growth rate g (calibrated at 3% for goods sector)
The Role of Learning for Asset Prices, Business Cycles, and Monetary Policy
New Keynesian DSGE model with financial accelerator where firms face credit constraints depending on stock market valuations, combined with learning about asset prices. Includes Calvo price and wage stickiness, investment adjustment costs, and
intermediate goods producers, final good producers, labor agencies, capital goods producers
intermediate goods producers: competitive with credit constraints; final goods producers: monopolistic competition with Calvo pricing; labor agencies: monopolistic competition with Calvo wage setting; capital goods producers: competitive with i
Firm owners: risk-neutral, trade equity claims on intermediate goods producers, receive dividends, maximize expected discounted consumption
Baseline learning model with Taylor rule φπ=1.50, no reaction to asset prices
Baseline estimated learning model in Table 5 Column 1
Learning model with optimized Taylor rule without asset price reaction φπ=1.37, φΔY=0.61
Learning model with optimized Taylor rule with asset price reaction φπ=1.20, φΔY=0.95, φΔP=0.12
Rational expectations model baseline with Taylor rule φπ=1.50
Rational expectations model with optimized Taylor rule without asset price reaction φπ=10.00, φΔY=2.67
Rational expectations model with optimized Taylor rule with asset price reaction φπ=9.30, φΔY=2.35, φΔP=0.47
A Primer on Optimal Monetary Policy with Staggered Price-Setting
Federal Reserve Bank of Richmond Economic Quarterly
Standard New Keynesian model with staggered price-setting (Calvo-style two-period pricing), monopolistic competition, money-in-utility, and no capital. Analyzes optimal monetary policy under commitment and discretion.
monopolistic competition with staggered price-setting; prices fixed for two periods; linear production technology using only labor
Optimal steady state inflation rate maximizing steady state welfare with staggered price-setting
Authors identify this as the optimal steady state inflation rate under their first notion of optimal policy (Section 3)
Long-run limit of optimal policy with commitment maximizing present value welfare
Steady state equilibrium under discretionary optimal policy without commitment
The Optimal Rate of Inflation with Trending Relative Prices
Two-sector New Keynesian model with trending relative prices across sectors (goods vs services), differential productivity growth rates, and heterogeneous price stickiness across sectors. Analyzes both time-dependent (Calvo/Taylor-style) and st
consumption (Cobb-Douglas aggregate of two goods), leisure
monopolistically competitive intermediate firms in two sectors
Linear production technology in labor with sector-specific productivity; monopolistic competition with Dixit-Stiglitz aggregation within each sector; time-dependent or state-dependent pricing with fixed costs of adjustment
Baseline time-dependent pricing with Calvo-Taylor stickiness, goods prices adjust every 2 quarters, services prices adjust every 3 quarters
Authors describe this as the benchmark calibration result in Section 4.2
Time-dependent pricing with flexible prices in sector s (expected duration = 1 quarter)
Time-dependent pricing with symmetric price stickiness across sectors (expected duration = 2 quarters in both sectors)
Time-dependent pricing with identical productivity growth rates across sectors (no relative price trend)
State-dependent pricing with common demand elasticity, lower adjustment costs in sector g (Bg=0.009, Bs=0.32)
State-dependent pricing with common adjustment costs, higher demand elasticity in sector g (epsilon_g=9.4, epsilon_s=5.5, Bg=Bs=0.007)
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
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
Optimal monetary policy during transition with initial price dispersion (A_{-1}>1); deflation occurs during transition
Zero inflation policy benchmark for comparison with optimal policy
Optimal policy steady state with alpha=0.6
Optimal policy steady state with alpha=0.75 (benchmark)
Optimal policy steady state with alpha=0.9
Welfare analysis comparing optimal vs zero inflation policies with epsilon=21
Welfare analysis comparing optimal vs zero inflation policies with epsilon=31
The Optimal Inflation Target and the Natural Rate of Interest
Andrade, P., Galí, J., Le Bihan, H., Matheron, J.
Banque de France; CREI; Banque de France; Banque de France
Medium-scale New Keynesian DSGE model with Calvo staggered price and wage setting, imperfect indexation of prices and wages to past inflation and trend inflation, imperfect indexation of wages to productivity growth, habit formation in consumpt
labor unions set wages subject to Calvo wage stickiness
Optimal inflation target at posterior mean of parameters, US
Authors present this as the baseline optimal inflation target for the US at posterior mean parameters
Optimal inflation target at posterior mode of parameters, US
Optimal inflation target at posterior median of parameters, US
Bayesian-theoretic optimal inflation target accounting for parameter uncertainty, US
Optimal inflation target at posterior mean of parameters, Euro Area
Optimal inflation target at posterior mode of parameters, Euro Area
Optimal inflation target at posterior median of parameters, Euro Area
Bayesian-theoretic optimal inflation target accounting for parameter uncertainty, Euro Area
Bayesian-theoretic optimal inflation after 100bp decline in r*, US
Bayesian-theoretic optimal inflation after 100bp decline in r*, Euro Area
Optimal inflation at posterior mean after 100bp decline in r*, US
Optimal inflation at posterior mean after 100bp decline in r*, Euro Area
Optimal inflation with negative ELB at -40bp, Euro Area baseline
Bayesian optimal inflation with known reaction function, US baseline
Bayesian optimal inflation with known reaction function after 100bp decline in r*, US
Bayesian optimal inflation with known reaction function, Euro Area baseline
Bayesian optimal inflation with known reaction function after 100bp decline in r*, Euro Area
Optimal inflation with larger demand shocks (30% larger), US
Optimal inflation with larger demand shocks (30% larger), Euro Area
Should the ECB adjust its strategy in the face of a lower r*?
Federal Reserve Bank of Boston; CREI, UPF and BSE; Banque de France; Banque de France
Medium-scale New Keynesian DSGE model with trend inflation, imperfect price and wage indexation to past inflation and productivity growth, Calvo staggered price and wage setting, habit formation in consumption, and an effective lower bound cons
Pre-crisis optimal inflation target with r*=2.8%, ELB=0%
Authors describe this as the pre-crisis baseline consistent with ECB's 2003 strategy review definition of price stability
Baseline optimal inflation target with r*=2.8%, ELB=-0.5%
Optimal inflation target after 1pp decline in r* (r*=1.8%), ELB=-0.5%
Optimal inflation target after 2pp decline in r* (r*=0.8%), ELB=-0.5%
Optimal inflation with emergency fiscal package, r*=2.8%, ELB=-0.5%
Optimal inflation with ELB=-0.8%, r*=2.8%
Optimal inflation with ELB=-0.8%, after 1pp decline in r* (r*=1.8%)
Optimal inflation with high interest rate smoothing (rho_i=0.95), r*=2.8%
Optimal inflation with low interest rate smoothing (rho_i=0.8), r*=2.8%
Optimal inflation under Price Level Targeting, r*=2.8%
Optimal inflation under Price Level Targeting after 1pp decline in r* (r*=1.8%)
Optimal inflation under Average Inflation Targeting (8-year window), r*=2.8%
Optimal inflation under Average Inflation Targeting (8-year window) after 1pp decline in r* (r*=1.8%)
Optimal monetary policy for the EMU accession countries. A new Keynesian approach
Two-sector (traded and nontraded) small open economy DSGE model with Calvo price stickiness in both sectors, complete asset markets, home bias in consumption, and Maastricht convergence criteria constraints on CPI inflation, nominal interest ra
nontraded sector firms, traded sector firms
monopolistic competition in both sectors with Calvo price setting; linear production in labor
Unconstrained optimal policy - zero mean inflation in steady state
Constrained optimal policy satisfying Maastricht criteria - nontraded sector inflation mean
Authors describe constrained policy as main contribution analyzing Maastricht criteria compliance
Constrained optimal policy satisfying Maastricht criteria - home traded sector inflation mean
CPI inflation target under constrained optimal policy (quarterly)
Gali-Monacelli one-sector model - unconstrained optimal policy PPI inflation mean
Gali-Monacelli one-sector model - constrained optimal policy PPI inflation mean