Time consistent monetary policy with endogenous price rigidity

• 成果类型: Article
• 署名作者: Siu, Henry E.
• 署名单位: University of British Columbia
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2007.06.009
• 发表日期: 2008
• 页码: 184-210
• 关键词: Time consistency; DISCRETION; Markov equilibrium; sticky prices; state dependent pricing; multiple equilibria; expectation traps

摘要

I characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion. Firms have the option to increase their frequency of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant degree of price rigidity across inflation regimes, find two time consistent equilibria - one with low inflation, the other with high inflation. In contrast, when price rigidity is endogenous, the high inflation equilibrium ceases to exist. Hence, time consistent equilibrium is unique. This result depends on two features of the analysis: (1) a plausible quantitative specification of the fixed cost of price change, and (2) the presence of an arbitrarily small cost of inflation that is independent of price rigidity. (C) 2007 Elsevier Inc. All rights reserved.