New study reveals optimal monetary policy for stabilizing economy fluctuations
The article explores how to best manage money in an economy where companies don't pay much attention to overall economic trends. When companies make mistakes due to this lack of attention, it creates uncertainty about the economy's health. The study finds that when prices set by companies are strongly influenced by each other and economic changes don't last long, it's best to focus on stabilizing the difference between actual and potential economic output. But if prices are less connected or changes last longer, it's better to focus on keeping prices stable. When changes last a long time, it's best to switch from focusing on output to focusing on prices, which explains why some banks focus on keeping prices stable in the medium term.