Economics, Econometrics and Finance
3 years ago

Monetary policy can stabilize inflation with weak responses to price stickiness.

Journal of money credit and banking
Price Stickiness Heterogeneity and Equilibrium Determinacy
Jae Won Lee, Woong Yong Park

Paper Summary

Monetary policy can stabilize the economy even with weak responses to inflation when prices are sticky and vary among goods. The U.S. economy experienced self-fulfilling expectations-driven fluctuations before a shift in monetary policy helped stabilize inflation.

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