An optimizingmodel, with a flexible-price sector and a sticky-price sector, ispresented to analyze the effects of relative-price changes on inflation fluctuations. Therelative price of the flexible-price good represents a shift parameter of the NewKeynesian Phillips curve. The optimal monetary...

This paper studies an advantage of commitment over discretion when a central bankobserves only noisy measures of current inflation and output, in the context of an optimizingmodel with nominal-price stickiness. Under a commitment regime, if current policy turns outto be too expansionary...

Empirical studies of the shoe-leather costs of inflation are typically computed using M1 as a measure of money. Yet, official data on M1 includes all currency issued, regardless of the country of residence of the holder. Using adjusted monetary data, we show that the failure to control for...

The flattening of the Phillips curve observed in the industrial countries has been attributed to globalisation, while the traditional explanation centres on monetary policy credibility. The empirical literature is not conclusive, since macroeconomic data are affected by substantial...

When the economy is subject to recurrent structural shifts, the monetary authority cannot credibly commit to a systematic approach to policy, since consistency between promises and actions is not easily verifiable; moreover, since agents have incomplete knowledge of the surrounding environment,...

In the monetary policy literature it is commonly assumed that trend inflation is zero, despite overwhelming evidence that zero inflation is neither empirically relevant nor a practical objective for central bank policy. We therefore extend the standard New Keynesian model to allow for positive...

The paper exploits a unique panel, covering some 2,000 Italian manufacturing firms and 14 years of data on individual prices and individual interest rates paid on several types of debt, to address the question of the existence of a channel of transmission of monetary policy operating through the...

Even low levels of trend inflation substantially affect the dynamics of a basic new Keynesian DSGE model when monetary policy is conducted by a contemporaneous Taylor rule. Positive trend inflation shrinks the determinacy region. Neither the Taylor principle, which requires the inflation...

This paper studies the importance of money for inflation in the euro area. An inflation equation is derived from a small model that combines the supply and demand for money with a Phillips curve and the assumption that inflation expectations develop adaptively. The model's solution attributes an...

In this paper we incorporate a labor market with matching frictions and wage rigidities into the New Keynesian business cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions affect the transmission process of monetary policy. The...