targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory …

inflation and not enough to spreads,and yield larger fluctuations in response to risk shocks. Reaction curves display shifts …

We use a simple New Keynesian model, with firm specific capital, non-zero steady-state inflation, long-run risks and … rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard … deviations from the policy rule and the results are re-enforced by the presence of non-zero trend inflation. …

responds to inflation and output volatility, especially during economic crises. This framework offers a promising alternative …