Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25155
Authors: 
Paustian, Matthias
Stoltenberg, Christian
Year of Publication: 
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

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