for the unemployment-inflation tradeoff and for the conduct of monetary policy.<br><br>We proceed in two steps. We first … setting by firms. We derive the relation between inflation and unemployment and discuss how it is influenced by the presence … of labor market frictions and real wage rigidities. We show the nature of the tradeoff between inflation and unemployment …

Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and … inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new … stabilizing inflation and stabilizing the welfare-relevant output gap. We show that not only does the extended model have more …

. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the … gains from making a credible commitment to fight inflation. In contrast to conventional wisdom, we show that gains from …