Economics, Econometrics and Finance
6 years ago

New study reveals optimal monetary policy for maximum societal welfare.

SSRN Electronic Journal
Optimal Monetary Policy
Aubhik Khan, Robert G. King, Alexander L. Wolman

Paper Summary

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Optimal monetary policy aims to maximize welfare by considering economic frictions. A model with two types of frictions - costly price adjustments by firms and costly exchange of wealth for goods - shows that optimal monetary policy follows two key principles.