Monetary policy, inflation and the business cycle

Abstract

Using a canonical version of the New-Keynesian model as a reference framework, Galí explores relevant topics in the design of monetary policy, including optimal monetary policy as well as the desirability of several simple policy rules. Galí analyses various extensions of the basic model including cost collisions, payroll inflexibilities and factors of the open economy. For each case, the implications are presented for monetary policy, emphasising the advantages of policies focusing on price stability.