Permanent effects of monetary policy in a dynamic menu cost model

This paper investigates whether a systematic monetary policy can affect output in a dynamic menu cost model that results in (S, s) price rules. It will be shown that monetary policy potentially can affect output, not only in the short run but also with regard to long-run average output. Even though the policy rule is fully known by the rational firm, perfectly anticipated monetary policy intervention may have a permanent real effect in the long run.