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Author:Benigno, Pierpaolo 

Working Paper
Overconfidence, Subjective Perception, and Pricing Behavior
We study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information. Our price-setters overestimate their abilities to infer aggregate shocks from private signals. The fraction of uninformed firms is endogenous; firms can obtain information by paying a fixed cost. We find two results: (1) overconfident firms are less inclined to acquire information, and (2) prices might exhibit excess volatility driven by nonfundamental noise. We explore the empirical predictions of our model for idiosyncratic price volatility.
AUTHORS: Benigno, Pierpaolo; Karantounias, Anastasios G.
DATE: 2017-11-01

Working Paper
Inflation persistence and optimal monetary policy in the euro area
In this paper we first present supporting evidence of the existence of heterogeneity in inflation dynamics across euro area countries. Based on the estimation of New Phillips Curves for five major countries of the euro area, we find that there is significant inertial (backward looking) behavior in inflation in four of them, while inflation in Germany has a dominant forward looking component. In the second part of the paper we present an optimizing agent model for the euro area emphasizing the heterogeneity in inflation persistence across regions. Allowing for such a backward looking component will affect the evaluation of the degree of nominal rigidities relevant for the monetary policy design. We explore the welfare implications of this circumstance by comparing the adjustment of the economies and the area as a whole in response to terms-of-trade shocks under four monetary policy rules: fully optimal, optimal inflation targeting, HICP targeting and output gap stabilization.
AUTHORS: Benigno, Pierpaolo; Lopez-Salido, J. David
DATE: 2002

Conference Paper
Price stability with imperfect financial integration
AUTHORS: Benigno, Pierpaolo
DATE: 2008

Conference Paper
Optimal stabilization policy when wages and prices are sticky: the case of a distorted steady state
AUTHORS: Woodford, Michael; Benigno, Pierpaolo
DATE: 2005

Conference Paper
Optimal monetary and fiscal policy: a linear-quadratic approach
AUTHORS: Woodford, Michael; Benigno, Pierpaolo
DATE: 2003

Working Paper
Optimal monetary and fiscal policy: a linear-quadratic approach
We propose an integrated treatment of the problems of optimal monetary and fiscal policy, for an economy in which prices are sticky (so that the supply-side effects of tax changes are more complex than in standard fiscal analyses) and the only available sources of government revenue are distorting taxes (so that the fiscal consequences of monetary policy must be considered alongside the usual stabilization objectives). Our linear-quadratic approach allows us to nest both conventional analyses of optimal monetary stabilization policy and analyses of optimal tax-smoothing as special cases of our more general framework. We show how a linear-quadratic policy problem can be derived which yields a correct linear approximation to the optimal policy rules from the point of view of the maximization of expected discounted utility in a dynamic stochastic general-equilibrium model. Finally, in addition to characterizing the optimal dynamic responses to shocks under an optimal policy, we derive policy rules through which the monetary and fiscal authorities may implement the optimal equilibrium. These take the form of optimal targeting rules, specifying an appropriate target criterion for each authority.
AUTHORS: Benigno, Pierpaolo; Woodford, Michael
DATE: 2004


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