Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305614 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11372
Publisher: 
CESifo GmbH, Munich
Abstract: 
We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides micro-foundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. When facing total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model.
Subjects: 
state-dependent pricing
large shocks
nonlinear Phillips curve
optimal monetary policy
JEL: 
E31
E32
E52
Document Type: 
Working Paper
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