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We study the design of optimal monetary policy in a New Keynesian model with labor turnover costs in which wages are … zero and the optimal volatility of inflation is an increasing function of firing costs. The optimal rule should react to …
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This paper compares the welfare effects of anticipated and unanticipated cost-push shocks within the canonical New Keynesian model with optimal monetary policy. We find that, for empirically plausible degrees of nominal rigidity, the anticipation of a future cost-push shock leads to a higher...
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