Research with Keynesian-style models has emphasized the importance of the output gap for policies aimed at controlling inflation while declaring monetary aggregates largely irrelevant. Critics, however, have argued that these models need to be modified to account for observed money growth and...

We study the equilibrium properties of a business cycle model with financial frictions and price adjustment costs. Capital-constrained entrepreneurs finance risky projects by borrowing from banks. Banks, in turn, make loans using equity and deposits. Because financial contracts are not...

This paper studies the state-dependent effects of monetary policy shocks. It shows that a canonical sticky-price model with real rigidity in the form of firm-specific factors can generate substantial state-dependence in the effects of monetary policy shocks. Factor specificity introduces a...

The introduction of digital price tags and online shopping may facilitate price adjustments and reduce the degree of nominal rigidity in the economy. Is this welfare-improving? We address this question in a multi-sector New Keynesian model with information frictions and dispersed beliefs....

The Optimal Price Index (OPI) stabilization policy traditionally assigns greater importance to stabilize prices in sectors with stickier prices based on multi-sector models with full information or exogenous information frictions. The current paper challenges this prevailing policy prescription...

This paper studies optimal monetary policy with the nominal interest rate as the single policy instrument in an economy,where firms set prices in a staggered way without indexation and real money balances contribute separately to households'utility. The optimal deterministic steady state under...

Using daily data on policy rates from 28 advanced economies and 32 emerging markets, this paper investigates the monetary policy reaction function of central banks during the Coronavirus Disease 2019 (COVID-19). Since inflation is mostly silent during this period, the reaction function focuses...