Here is the home page, here is his job market paper (with Daniele Caratelli) “Optimal policy under menu costs”: We analytically characterize optimal monetary policy in a multisector economy with menu costs, and show that inflation and output should move inversely after sectoral shocks. That is, following negative shocks, inflation should be allowed to rise,
The post Basil Halperin on the job market from MIT appeared first on Marginal REVOLUTION.
Here is the home page, here is his job market paper (with Daniele Caratelli) “Optimal policy under menu costs”:
We analytically characterize optimal monetary policy in a multisector economy with menu costs, and show that inflation and output should move inversely after sectoral shocks. That is, following negative shocks, inflation should be allowed to rise, and vice versa. In a baseline parameterization, optimal policy stabilizes nominal wages. This nominal wage targeting contrasts with inflation targeting, the optimal policy prescribed by the textbook New Keynesian model in which firms are permitted to adjust their prices only randomly and exogenously. The key intuition is that stabilizing inflation causes shocks to spill over across sectors, needlessly increasing the number of firms that must pay the fixed cost of price adjustment compared to optimal policy. Finally, we show in a quantitative model that, following a sectoral shock, nominal wage targeting reduces the welfare loss arising from menu costs by 81% compared to inflation targeting.
Noteworthy!
The post Basil Halperin on the job market from MIT appeared first on Marginal REVOLUTION.
Economics