This paper considers the appropriate stabilization objectives for monetary policy in a micro-founded 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 considers optimal monetary stabilization policy in a forward-looking model, when the central bank recognizes that private-sector expectations need not be precisely model-consistent and wishes to choose a policy that will be as good as possible in the case of any beliefs that are close...