Working Paper: Optimal Monetary Policy with Nominal Rigidities and Lumpy Investment (with Tommy Sveen)
Abstract:
New Keynesian theory generally abstracts from the lumpy nature of plant-
level investment (see, e.g., Woodford 2003, Ch. 5 and 2005). Given the great
interest in the role of investment spending for shaping optimal monetary pol-
icy, this simplication could be problematic. But is this the case? Our answer
is no, which lends additional credibility to a large and growing literature in
the field of monetary economics.
Keywords: Lumpy Investment, Sticky Prices, Sticky Wages, Welfare.
JEL Classification: E22, E31, E32