This study examines the optimal monetary policy delegation in a small-open new Keynesian model with model uncertainty. We show that under the worst-case equilibrium, nominal income growth targeting outperforms the considered alternative delegation regimes. We find that the response of the nominal exchange rate depends on the specifications of the delegated targeting regimes. Finally, introducing endogenous inflation persistence into the benchmark model does not affect our main findings.

This paper examines optimal monetary policy in a two-country model with staggered nominal prices and wages. We show that given home nominal wage stickiness, changes in the degree of foreign nominal wage stickiness substantially impact the worldwide welfare losses and gains from commitment policy. Specifically, the welfare gains from a commitment policy are greatest when nominal wages in both countries are perfectly flexible. However, when nominal wages in the foreign country are stickier, the gains from commitment decrease.

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