This paper studies different types of commitment policy in an economy where the deterministic steady state is inefficient. We show how a policy suggested by the approach of policy design entails positive long-run inflation, ...

The aim of this thesis is to study the effects of inflation persistence due to rule-of-thumb behaviour by price setters on optimal monetary policy. We start with a canonical log-linearised New Keynesian model, which we ...

Within New Keynesian economics, the optimality of a monetary policy that aims at zero inflation is surprisingly robust. Optimal monetary policy has this character despite the inefficiency of the nonstochastic steady state ...

Central banks typically have a long-run inflation target that is modestly positive. However, the standard New Keynesian framework prescribes that zero inflation is the optimal longrun target. In this paper, we show that ...

The Phillips curve represents the link between the business cycle and infation and constrains the actions of policymakers. In this paper, we study the optimal long-run rate of infation in the presence of a hybrid Phillips ...