Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211882 
Authors: 
Year of Publication: 
2001
Series/Report no.: 
Bank of Finland Discussion Papers No. 4/2001
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper investigates the consequences of introducing endogenous price stickiness into a standard monetary policy model.We find that the modification reduces the optimal degree of inflation stabilization to which the central bank should commit.The reason is that less inflation stabilization encourages firms to review their prices more frequently.The economy becomes more flexible and the Phillips-curve tradeoff is improved, making it easier for the central bank to control inflation.This reduces, and may even reverse, the stabilization bias that is present in models with exogenous price stickiness and that recommends that the central bank generally commit to tighter stabilization of inflation than it would in a discretionary policy regime.
Subjects: 
price stickiness
monetary policy
stabilization bias
Persistent Identifier of the first edition: 
ISBN: 
951-686-707-3
Document Type: 
Working Paper

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