Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098900 | Journal of Economic Dynamics and Control | 2011 | 16 Pages |
Abstract
This paper examines the role of monetary policy in an environment with aggregate risk and incomplete markets. In a two-period overlapping-generations model with aggregate uncertainty, optimal monetary policy attains the ex-ante Pareto optimal allocation. This policy aims to stabilize the savings rate in the economy by changing real returns of nominal bonds via variation in expected inflation. Optimal expected inflation is procylical and on average higher than without uncertainty. Simple inflation targeting rules closely approximate the optimal monetary policy.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Oleksiy Kryvtsov, Malik Shukayev, Alexander Ueberfeldt,