The Macroeconomic Effects of Non-Zero Trend Inflation

Robert Amano, Steve Ambler and Nooman Rebei ()

Working Papers from Bank of Canada

Abstract: The authors study the macroeconomic effects of non-zero trend inflation in a simple dynamic stochastic general-equilibrium model with sticky prices. They show that trend inflation leads to a substantial reduction in the stochastic means of output, consumption, and employment. It also leads to an increase in the variability and persistence of most aggregates. Price dispersion across firms unambiguously increases the welfare costs of inflation. The effects hold qualitatively no matter how sticky prices are modelled, but they are quantitatively much stronger under Calvo pricing.

Keywords: Business fluctuations and cycles; Economic models; Inflation and prices; Inflation targets (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2006
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Journal Article: The Macroeconomic Effects of Nonzero Trend Inflation (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:bca:bocawp:06-34

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