Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264505 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2680
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper proposes a tractable New Keynesian (NK) economy with endogenous adjustment in product quality that nests the canonical framework. Endogenous quality choice reduces the slope of the traditional NK Phillips curve and ampliffes the economy's response to productivity shocks. This leads to a less reactionary monetary policy where model misspeciffcation of imperfectly observable quality adjustments matters more for macroeconomic stabilization than the mismeasurement of those adjustments. With no misperception of product quality by the monetary authority, the principles for optimal monetary policy are, nonetheless, unchanged as the quality extensions to the canonical NK model preserve divine coincidence.
Subjects: 
Product Quality
Inflation Indexes
Monetary Policy
JEL: 
E31
E32
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5264-4
Document Type: 
Working Paper

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