Optimal inflation for the U.S

Roberto Billi

No RWP 07-03, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: What is the correctly measured inflation rate that monetary policy should aim for in the long-run? This paper characterizes the optimal inflation rate for the U.S. economy in a New Keynesian sticky-price model with an occasionally binding zero lower bound on the nominal interest rate. Real-rate and mark-up shocks jointly determine the optimal inflation rate to be positive but not large. Even allowing for the possibility of extreme model misspecification, the optimal inflation rate is robustly below 1 percent. The welfare costs of optimal inflation and the lower bound are limited.>

Keywords: Inflation; (Finance) (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (27)

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https://www.kansascityfed.org/documents/5342/pdf-RWP07-03.pdf (application/pdf)

Related works:
Journal Article: Optimal Inflation for the US Economy (2011)
Working Paper: The Optimal Long-Run Inflation Rate for the U.S. Economy (2006)
Working Paper: The Optimal Inflation Buffer with a Zero Bound on Nominal Interest Rates (2005)
Working Paper: The optimal inflation buffer with a zero bound on nominal interest rates (2004)
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