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Title:Optimal interest rate stabilization in a basic sticky-price model PDF Logo
Authors:Paustian, Matthias
Stoltenberg, Christian
Issue Date:2006
Series/Report no.:SFB 649 discussion paper 2006,072
Abstract:This paper studies optimal monetary policy with the nominal interest rate as the single policy instrument in an economy,where firms set prices in a staggered way without indexation and real money balances contribute separately to households'utility. The optimal deterministic steady state under commitment is the Friedman rule - even of the importance assigned to the utility of money is small relative to consumption and leisure. We approximate the model around the optimal steady state as the long-run policy target. Optimal monetary policy is characterized by stabilization of the nominal interest rate instead of inflation stabilization as the predominant principle.
Subjects:Optimal monetary policy
commitment
timeless perspective
optimal steady state
staggered price setting
monetary friction
Friedman's rule
JEL:E32
E52
E58
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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