This paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price-setting. Rotemberg and Woodford (1997) and Woodford (2002) have shown that under certain conditions, a local approximation to the expected utility of the representative...

This paper derives loss functions for monetary policy that are grounded in the welfare of private agents, for optimizing models with nominal price rigidities. Inflation stabilization enhances welfare, insofar as variable inflation results in real distortions when prices are not adjusted...

Because inputs are scarce, marginal cost should be an increasing function of output. Without changes in this real marginal cost schedule, aggregate output can vary if and only if the markup of price over marginal cost varies. In this review, we discuss the extent to which observed fluctuations...

This paper shows that it is possible to analyze equilibrium inflation determination without any reference to either money supply or demand, as long as one specifies policy in terms of a Wicksellian' interest-rate feedback rule. This approach should be of considerable interest, as central banks...

The paper presents an intertemporal general equilibrium model with rationing in the product market, in which stationary sunspot equilibria are shown to exist, indicating the possibility of fluctuations in economic activity simply due to self-fulfilling variations in economic agents'...