Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/28379 
Authors: 
Year of Publication: 
2009
Series/Report no.: 
Kiel Working Paper No. 1552
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
The literature has shown that product market frictions and firms dynamic play a crucial role in reconciling standard DSGE with several stylized facts. This paper studies optimal monetary policy in a DSGE model with sticky prices and oligopolistic competition. In this model firms' monopolistic rents induce both intra-temporal and intertemporal time-varying wedges which induce inefficient fluctuations of employment and consumption. The monetary authority faces a trade-off between stabilizing inflation and reducing inefficient fluctuations, which is resolved by using consumer price inflation as a state contingent sale subsidy. An analysis of the welfare gains of alternative rules show that targeting mark-ups and asset prices might improve upon a strict inflation targeting.
Subjects: 
Product market frictions
oligopolistic competition
optimal monetary policy
JEL: 
E3
E5
Document Type: 
Working Paper

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