Senay, Ozge; Sutherland, Alan - Scottish Institute for Research in Economics (SIRE) - 2010
Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is … exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in … monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price …