The optimal inflation buffer with a zero bound on nominal interest rates
No 2005/17, CFS Working Paper Series from Center for Financial Studies (CFS)
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 welfaretheoretic 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)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Working Paper: The Optimal Inflation Buffer with a Zero Bound on Nominal Interest Rates (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:zbw:cfswop:200517
Access Statistics for this paper
More papers in CFS Working Paper Series from Center for Financial Studies (CFS) Contact information at EDIRC.
Series data maintained by ZBW - German National Library of Economics ().