We study optimal monetary policy in a two-sector model. The conventional wisdom in the literature is that the monetary authority should optimally stabilize inflation in the sticky-price sector. We reassess this issue in a two sector economy with capital accumulation subject to adjustment costs....

The lack of euro area labour market flexibility is a commonly mentioned issue. In particular, the relatively weak response of wages to high unemployment can pose adjustment problems. We address the issue using extensive simulations of an estimated macro-econometric model for the euro area (the...

n this paper we develop the Generalize Taylor Economy (GTE) in which there are many sectors with overlapping contracts of different lengths. We are able to show that even in economies with the same average contract length, monetary shocks will be more persistent when there are longer contracts....

We analyze the trade-offs faced by a monetary policy authority when a value added tax rate is increased. In the short run, such an increase acts as a cost push shock from the perspective of a central bank that is concerned with stabilizing the welfare relevant output gap. We develop a New...

This paper studies the effects of monetary policy in a model with demand shocks driven by shifts in consumer expectations. I ask wether monetary policy can offset these aggregate demand disturbances and wether this offsetting is socially desirable. I consider an environment with dispersed...

This paper presents a new argument for international monetary policy coordination based on considerations of structural asymmetries across countries. In a two-country world with a traded and a non-traded sector in each country, optimal independent monetary policy cannot replicate the...