In this paper, we show that strategic complementarities'such as firm-specific factors or quasikinked demand?have crucial implications for the design of monetary policy and for the welfare costs of output and inflation variability. Recent research has mainly used log-linear approximations to...

How monetary policy should be set optimally when the structure of the economy exhibits inflation persistence is an important question for policy makers. This paper provides an overview of the implications of inflation persistence for the design of monetary policy