Sticky information and the Taylor principle

Research Area: Monetary Policy
Researcher: Alexander Meyer-Gohde,
Mary Tzaawa-Krenzler
Date: 1.9.2023

The authors present determinacy bounds on monetary policy in the sticky information model. They find that these bounds are more conservative here when the long run Phillips curve is vertical than in the standard Calvo sticky price New Keynesian model. Specifically, the Taylor principle is now necessary directly - no amount of output targeting can substitute for the monetary authority’s concern for inflation. These determinacy bounds are obtained by appealing to frequency domain techniques that themselves provide novel interpretations of the Phillips curve.

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