This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy...

No. Even if firms reset their prices more frequently when they face higher uncertainty, monetary policy may not be less effective in boosting real activity when firms become less responsive to monetary policy. In this case, the real effect of monetary policy can be strengthened even though they...

We build a New Keynesian business-cycle model with rich household heterogeneity. A central feature is that matching frictions render labor-market risk countercyclical and endogenous to monetary policy. Our main result is that a majority of households prefer substantial stabilization of...