ABSTRACT
Introduction Monetary policy design issues are often analysed through monetary policy rules aimed at stabilising the economy around its long-run equilibrium.1 This equilibrium is usually assumed to be fully determined by structural variables (as, for instance, the natural rate of unemployment) and consequently it is supposed to remain unaffected by monetary policy. Inflation generates only welfare cost for economic agents (inflation tax) and inflation volatility is a source of destabilising mistakes. Then, according to these approaches, price stability must be the main objective of central banks. In a world of nominal and/or real rigidities, preventing the economic system from adjusting instantaneously, monetary policy rules are implemented in order to control the evolution of money supply or the interest rate maintaining the economy around its natural level.
