We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these...

The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual...

This paper studies the design of optimal time-consistent monetary policy in an economy where the planner trusts its own model, while a representative household uses a set of alternative probability distributions governing the evolution of the exogenous state of the economy. In such environments,...

We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, 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...

Several recent papers are devoted to the examination of the central banker's behaviour in an uncertain economic environment. This paper proposes, from a central banker's point of view, a synthesis of the main sources of uncertainty as well as an illustration of their effects within an analytical...