Persistent Habits, Optimal Monetary Policy Inertia and Interest Rate Smoothing
نویسندگان
چکیده
Dynamic stochastic general equilibrium models featuring imperfect competition and nominal rigidities have become central for the analysis of the monetary transmission mechanism and for understanding the conduct of monetary policy. However, it is agreed that the benchmark model fails to generate the persistence of output and ination that is observed in the data. Moreover, it cannot provide a theoretically well-grounded justi cation for the interest rate smoothing behaviour of monetary authorities. This paper attempts to overcome these de ciencies by embedding a multiplicative habit speci cation in a New Keynesian model. We show that this particular form of habit formation can explain why monetary authorities smooth interest rates. JEL Classi cations: D12, E52, E43.
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