PERMANENT EFFECTS OF MONETARY-POLICY IN A DYNAMIC MENU COST MODEL

This paper investigates whether a systematic monetary policy can affec t output in a dynamic menu cast model that results in (S, s) price rul es. It will be shown that monetary policy potentially can affect outpu t, 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 fir m, perfectly anticipated monetary policy intervention may have. perman ent real effect in the long run.