Optimal trend inflation
Klaus Adam and
Henning Weber
No 25/2017, Discussion Papers from Deutsche Bundesbank
Abstract:
We present a sticky-price model incorporating heterogeneous firms and systematic firm-level productivity trends. Aggregating the model in closed form, we show that it delivers radically different predictions for the optimal inflation rate than canonical sticky price models featuring homogenous firms: (1) the optimal steady-state inflation rate generically differs from zero and (2) inflation optimally responds to productivity disturbances. Using micro data from the US Census Bureau to estimate the inflation-relevant productivity trends at the firm level, we find that the optimal US inflation rate is positive. It was slightly above 2 percent in the year 1986, but continuously declined thereafter, reaching about 1 percent in the year 2013.
Keywords: optimal inflation rate; sticky prices; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (15)
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https://www.econstor.eu/bitstream/10419/168341/1/896812340.pdf (application/pdf)
Related works:
Journal Article: Optimal Trend Inflation (2019) 
Working Paper: Optimal Trend Inflation (2018) 
Working Paper: Optimal Trend Inflation (2018) 
Working Paper: Optimal Trend Inflation (2018) 
Working Paper: Optimal Trend Inflation (2018) 
Working Paper: Optimal Trend Inflation (2017) 
Working Paper: Optimal trend inflation (2017) 
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:252017
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