Clearly time inconsistency arises in the case of u>/2. Intuitively, high price stickiness induces incentive of inflation the underlying mechanism is the same as Phillips Curve .Specifically, " A benefit of expansionary monetary policy is that it leads to an increase in demand for goods whose prices are fixed. This increase demand tends to raise employment. Note that inefficient low employment is due to monopolistic competition. " A principal cost of EMP is that it tends to reduce employment in the cash good sector. Finally "It is possible that the reduction in employment in the cash good sector is so large that overall employment and welfare fall. Quoted from Albanesi, Chari and Christiano(2003, pp 136) .Note 1: This result is sensitive to the modeling of money demand s Note 2: We only study the local optimum 3 (global optimum has been checked numerically) sNote 3: Here Time Consistent Solution is s (implicitly) contingent upon P, So ACC B call the solution"Markov Equilibrium❖ Clearly time inconsistency arises in the case of μ > ½. Intuitively, high price stickiness induces incentive of inflation, the underlying mechanism is the same as Phillips Curve. ❖ Specifically, “A benefit of expansionary monetary policy is that it leads to an increase in demand for goods whose prices are fixed. This increase in demand tends to raise employment.” Note that inefficient low employment is due to monopolistic competition. “A principal cost of EMP is that it tends to reduce employment in the cash good sector”. Finally, “It is possible that the reduction in employment in the cash good sector is so large that overall employment and welfare fall.” Quoted from Albanesi, Chari and Christiano (2003, pp. 136). ❖ Note 1: This result is sensitive to the modeling of money demand. ❖ Note 2: We only study the local optimum (global optimum has been checked numerically). ❖ Note 3: Here Time Consistent Solution is (implicitly) contingent upon Pf , so ACC call the solution “Markov Equilibrium”. This equilibrium is unique under some