This paper offers several contributions to actual research and discussion on monetary policy. It clarifies the relationship between uncertainty of inflation persistence and optimal monetary policy and discusses the consequences of the recent Blanchard proposal to implement a higher inflation...

Recently macroeconomic researchers have begun studying models of optimal monetary policy within the Real Business Cycle (RBC) framework. A standard RBC model is augmented by New Keynesian elements like sticky prices and monopolistically competitive firms. The monetary authority acts as a social...