We present determinacy bounds on monetary policy in the sticky information model. We find that these bounds are more conservative here when the long run Phillips curve is vertical than in the standard Calvo sticky price New Keynesian model. Specifically, the Taylor principle is now necessary...

Recent literature on monetary policy analysis extensively uses the sticky price model of price adjustment in a New Keynesian Macroeconomic framework. This price setting model, however, has been criticized for producing implausible results regarding inflation and output dynamics. This paper...

We study discretionary equilibrium in the Calvo pricing model for a monetary authority that chooses the money supply, producing three main contributions. First, price‐adjusting firms have a unique equilibrium price for a broad range of parameterizations, in contrast to earlier results for the...

In this paper, we characterize conditions under which interest rate feedback rules that set the nominal interest rate as an increasing function of the inflation rate induce aggregate instability by generating multiple equilibria. We show that these conditions depend not only on the...

The uniqueness of bounded local equilibria under interest rate rules is analyzed in a model with sticky information `a la Mankiw and Reis (2002). The main results are tighter bounds on monetary policy than in sticky-price models, irrelevance of the degree of output-gap targeting for determinacy,...

In the recent New Keynesian literature a standard assumption is that the price for which an intermediate good is sold to the final good firm is equal to the marginal costs of the intermediate good firm. However, there is empirical evidence that this need not to hold. This paper introduces price...

In most European countries, money wages are given in collective agreements or individual employment contracts, and the employer cannot unilaterally cut wages, even after the expiration of a collective agreement. Ceteris paribus, workers have a stronger bargaining position when they try to...

This paper studies monetary policy rules in a small open economy with Inflation Targeting, incomplete pass-through and rigid nominal wages. The paper shows that, when nominal wages are fully flexible and pass-through is low to moderate, the monetary authority should target the consumer price...

In a simple two-sector New Keynesian model, sticky prices generate a counterfactual negative comovement between the output of durable and nondurable goods following a monetary policy shock. We show that heterogeneous factor markets allow any combination of strictly positive price stickiness to...

Macroeconomists have traditionally ignored the behavior of temporary price markdowns ("sales") by retailers. Although sales are common in the micro price data, they are assumed to be unrelated to macroeconomic phenomena and generally filtered out. We challenge this view. First, using the 1996 -...