Interest Rate Policy in Continuous Time with Discrete Delays ∗

  title={Interest Rate Policy in Continuous Time with Discrete Delays ∗},
  author={Jess Benhabib},
We study the design of monetary policy in a continuous time framework with delays. More explicitly, we consider a linear, flexible price model where inflation and nominal interest rates chage continously, but where nominal rates are set by the Central bank in response to a lagged inflation measure, and where the measure of inflation can be constructed as a flexible distributed delay. Therefore the central bank has, in addition to the choice of an ”active” or ”passive” response to inflation, two… CONTINUE READING

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