Logo
Munich Personal RePEc Archive

Optimal Stabilization Policy with Search Externalities

Berentsen, Aleksander and Waller, Christopher (2013): Optimal Stabilization Policy with Search Externalities. Forthcoming in:

[thumbnail of MPRA_paper_59745.pdf]
Preview
PDF
MPRA_paper_59745.pdf

Download (348kB) | Preview

Abstract

We study optimal monetary stabilization policy in a DSGE model with microfounded money demand. A search externality creates ‘congestion’ which causes aggregate output to be inefficient. Due to the informational frictions that give rise to money, households are unable to perfectly insure themselves against aggregate shocks. This gives rise to a welfare improving role for monetary policy that works by adjusting the nominal interest rate in response to these shocks. Optimal policy is determined by choosing a set of state-contingent nominal interest rates to maximize the expected lifetime utility of the agents subject to the constraints of being an equilibrium.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.