US and Europe: Monetary Policy Impact Revealed, Inflation Inertia Uncovered
General equilibrium models were used to study monetary policy in the US and Europe. The models considered inflation inertia and habits in consumption. Results showed more price-setting inertia in Europe, longer wage contracts in the US, and small backward-looking behavior in both regions. Significant habits effects were found in European consumption. The impact of monetary policy on variables was similar to other studies, but with less inertia in dynamic paths.