Erceg, C.J.; Henderson, D.W.; Levin, A.T. - Institute for International Economic Studies (IIES), … - 1998
We demonstrate the existence of a monetary policy tradeoff between price-inflation variability and output-gap variability in an optimizing-agent model with staggered nominal wage and price contracts. This variance tradeoff is absent only in the special case in which prices are sticky and wages...