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  • CEPR-DP15944

    Rights statement: This is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, 140, 2021 DOI: 10.1016/j.euroecorev.2021.103945

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    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

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Asymmetries in Monetary Policy

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Article number103945
<mark>Journal publication date</mark>30/11/2021
<mark>Journal</mark>European Economic Review
Volume140
Publication StatusPublished
Early online date26/10/21
<mark>Original language</mark>English

Abstract

Nonlinearities embedded in the standard New-Keynesian model show that a welfare maximizing policymaker should behave in line with a contractionary bias, fearing more expansions in output and inflation rather than contractions. On the contrary, the aggregate-supply equation implies that any upward pressure coming from real marginal costs does not necessarily push up inflation. Once these two forces are combined in the optimal policy, an overall expansionary bias emerges. The nonlinearities of the AS equation combined with changes in volatility can be responsible for a flattening in the estimated linear Phillips curve.

Bibliographic note

This is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, 140, 2021 DOI: 10.1016/j.euroecorev.2021.103945