Publication

This paper studies the design of optimal monetary policy (Ramsey policies) in a model with sticky prices and unionized labour markets. On the one side deviations from zero inflation allow the policy maker to smooth inefficient employment fluctuations. On other side, the presence of wage mark-ups and wage stickiness produce inflationary pressures that require aggressive inflation targeting. Overall, the authors find that the Ramsey planner deviates from full price stability and that an optimal rule targets inflation the real economic activity alongside inflation.