Download now Free registration required
The paper analyzes optimal monetary strategy and policy trade-offs in a DSGE model of an open economy with traded and non-traded sectors. The authors approximate the utility of the representative consumer to obtain a micro-founded quadratic loss function of the form extensively used for monetary policy assessment. The central bank's optimal strategy is computed and optimal and simple policy rules compared according to the derived welfare measure. The findings suggest that social welfare objectives display sector-specific features and prescribe the stabilisation of the appropriately weighted sectoral inflation rates and output gaps.
- Format: PDF
- Size: 671.2 KB