The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated...

Conventional wisdom regards a reduced aggregate noise as welfare improving. This study demonstrates that increased transparency regarding the unobserved state of the economy may reduce social welfare owing to the presence of nominal rigidity. On the one hand, costly business cycle fluctuations...

The introduction of digital price tags and online shopping may facilitate price adjustments and reduce the degree of nominal rigidity in the economy. Is this welfare-improving? We address this question in a multi-sector New Keynesian model with information frictions and dispersed beliefs....

Monetary policy shocks affect interest rates at long horizons (10 years or more). Furthermore, the private sector's real GDP forecasts are revised upward in response to a monetary tightening. These facts challenge the prevailing theories in academic and policy circles. In this paper, I propose a...

Firms’ market power, measured by markups, has risen substantially and unequally across sectors. To evaluate the implications of these trends for monetary non-neutrality, we develop a quantitative menu cost model that covers multiple sectors with heterogeneous degrees of market competition. Two...

Excess sensitivity—the significant effects of monetary policy on long-term interest rates—is a well-known puzzle. This paper documents excess sensitivity as being more pronounced in response to monetary policy easing than monetary tightening—the asymmetric excess-sensitivity puzzle. A...