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Sonderforschungsbereich 649: Ökonomisches Risiko, Humboldt-Universität Berlin >
SFB 649 Discussion Papers, HU Berlin >
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http://hdl.handle.net/10419/25155
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| Title: | | Optimal interest rate stabilization in a basic sticky-price model  |
| 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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