Macroeconomics Seminar Series. "Strike while the Iron is Hot: Optimal Monetary Policy with a Nonlinear Phillips Curve"
Published: 3 October 2024
31 October 2024. Dr Dominik Thaler, European Central Bank
Dr Dominik Thaler, European Central Bank
"Strike while the Iron is Hot: Optimal Monetary Policy with a Nonlinear Phillips Curve"
Thursday, 31 October 2024. 15:00-16:30
Seminar Room 2 (G53), Kelvin Hall Building
Abstract
We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) statedependent pricing framework. The model provides microfoundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. At the same time, when facing efficient shocks, such as total factor productivity shocks, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model.
Bio
Dominik Thaler is a Senior Economist at the ECB's Research Department. Previously he had been at the Monetary Policy Departments at the European Central Bank and at the Bank of Spain. His research focuses on models of monetary and fiscal policy with financial frictions, and has been published in journals such as the Economic Journal or the Journal of Monetary Economics. He holds a Phd from the European University Institute.
For further information, please contact business-seminar-series@glasgow.ac.uk.
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First published: 3 October 2024