Inflation Band Targeting and Optimal Inflation Contracts
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Optimal monetary policy in a small open economy with staggered wage and price contracts
We study optimal monetary policy for a small open economy in a model where both domestic prices and wages are sticky due to staggered contracts. The simultaneous presence of the two forms of nominal rigidities introduces an additional trade-off between domestic inflation and the output gap. We derive a second-order approximation to the average welfare losses that can be expressed in terms of th...
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