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Daisuke Ida
''Optimal monetary policy in an economy with real rigidity''
( 2012, Vol. 32 No.3 )
Several studies address the importance of the effect of real rigidity on macroeconomic variables. The presence of real rigidity might change the property of optimal monetary policy suggested by the canonical new Keynesian model. We examine optimal monetary policy in an economy with real rigidity. According to our simulation results, the welfare gain associated with a commitment policy declines as the degree of real rigidity increases. This paper also finds that price level targeting is an effective policy regime when real rigidity is present.
Keywords: Real rigidity; Optimal monetary policy; Commitment; Discretion; Targeting regimes
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
E4 - Money and Interest Rates: General
Manuscript Received : Oct 16 2011 Manuscript Accepted : Aug 21 2012

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