We analyze optimal monetary policy when a central bank has to learn about an unknown coefficient that determines the effect of surprise inflation on aggregate demand. We derive the optimal policy under active learning and compare it to two limiting cases---certainty equivalence policy and...

In economic situations where action entails a fixed cost, inaction is the norm. Action is taken infrequently, and adjustments are large when they occur. Interest in economic models that exhibit ''lumpy'' behavior of this kind has exploded in recent years, spurred by growing evidence that it is...

In this paper an analytical framework similar to a robust control problem was developed for the one-state, one-control variable model to examine the response of the control variable to change in the quot;freequot; parameter. However, in contrast to Gonzalez and Rodriguez (2003), the sign...