EXTREME EVENTS AND OPTIMAL MONETARY POLICY

• 成果类型: Article
• 署名作者: Kim, Jinill; Ruge-Murcia, Francisco
• 署名单位: Korea University; McGill University
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/iere.12372
• 发表日期: 2019
• 页码: 939-963
• 关键词: frequency-distribution; maximum; prices; models

摘要

This article studies the implication of extreme shocks for monetary policy. The analysis is based on a small-scale New Keynesian model with sticky prices and wages where shocks are drawn from asymmetric generalized extreme value distributions. A nonlinear perturbation solution of the model is estimated by the simulated method of moments. Under the Ramsey policy, the central bank responds nonlinearly and asymmetrically to shocks. The trade-off between targeting a gross inflation rate above 1 as insurance against extreme shocks and targeting an average gross inflation at unity to avoid adjustment costs is unambiguously decided in favor of strict price stability.