The Optimal Inflation Buffer with a Zero Bound on Nominal Interest Rates
Roberto Billi
No 25, Computing in Economics and Finance 2005 from Society for Computational Economics
Abstract:
This paper characterizes the optimal inflation buffer consistent with a zero lower bound on nominal interest rates in a New Keynesian sticky-price model. It is shown that a purely forward-looking version of the model that abstracts from inflation inertia would significantly underestimate the inflation buffer. If the central bank follows the prescriptions of a welfare-theoretic objective, a larger buffer appears optimal than would be the case employing a traditional loss function. Taking also into account potential downward nominal rigidities in the price-setting behavior of firms appears not to impose significant further distortions on the economy
Keywords: inflation inertia; downward nominal rigidity; nonlinear policy; liquidity trap (search for similar items in EconPapers)
JEL-codes: C63 E31 E52 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)
Downloads: (external link)
http://repec.org/sce2005/up.27221.1104375907.pdf (application/pdf)
Related works:
Journal Article: Optimal Inflation for the US Economy (2011) 
Working Paper: Optimal inflation for the U.S (2007) 
Working Paper: The optimal inflation buffer with a zero bound on nominal interest rates (2004) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:25
Access Statistics for this paper
More papers in Computing in Economics and Finance 2005 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().