Quantifyingandsustainingwelfaregainsfrom monetary commitment

Our objectivesare:toquantifythestabilizationwelfaregainsfromcommitment;to examinehowcommitmenttoanoptimalrulecanbesustainedasanequilibrium;to find asimpleinterestraterulethatapproximatestheoptimalcommitmentone.We utilizeanempiricalmicro-foundedeuro-areaDSGEmodel,aquadraticapproximationof householdutilityasthewelfarecriterion,employinganominalinterestratelower bound.Incontrasttopreviousstudies,wefindsignificantcommitmentstabilization gains ofarounda0.4–0.5%equivalentpermanentconsumptionincrease,andwith higher pricestickinessgainsover2%.Wefindthatasimpleoptimizedcommitmentrule responding toinflationandtherealwagemimicstheoptimalone