ESSAYS ON MONETARY POLICY

Abstract

Chapter 1 analyses the welfare implications of different monetary policy strategies in the empirically validated business cycle model of Smets and Wouters under commitment and discretion. Once the preferences do not coincide with each other, discretionary policies that target the price-level or the change in the output gap outperform the standard loss function. Chapter 2 investigates optimal monetary policy when the policymaker considers both a model with search and matching frictions in the labor market and a model with sticky nominal wages to be good approximations of the true data-generating process. When monetary policy reflects uncertainty over the true model, wage inflation stabilization features importantly as long as the policymaker assigns a moderate probability to the sticky wage model. Chapter 3 discusses aspects of the optimal monetary policy in a New Keynesian model with search and matching frictions.