Optimal Policy With Initial Price Dispersion (Yun, 2005)
Consider the staggered-price model of Section 9.16. Suppose that \(s_{-1}<1\). Show that there is an exchange-rate policy that supports the flexible-price equilibrium. Characterize the path of nontradable inflation induced by this (optimal) exchange-rate policy. Provide intuition.
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title: "Exercise 9.14"
subtitle: "Optimal Policy With Initial Price Dispersion (Yun, 2005)"
---
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## Problem
Consider the staggered-price model of Section 9.16. Suppose that $s_{-1}<1$. Show that there is an exchange-rate policy that supports the flexible-price equilibrium. Characterize the path of nontradable inflation induced by this (optimal) exchange-rate policy. Provide intuition.
## Answer
_No solution has been posted yet. If you have a solution, we invite you to share it in the comment box at the bottom of this page._