The implications of inflation in an estimated new Keynesian model

Pablo Guerron

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 6, 947-962

Abstract: This paper studies the steady state and dynamic consequences of inflation in an estimated dynamic stochastic general equilibrium model of the U.S. economy. It is found that 10 percentage points of inflation entail a steady state welfare cost as high as 13% of annual consumption. This large cost is mainly driven by staggered price contracts and price indexation. The transition from high to low inflation inflicts a welfare loss equivalent to 0.53% of annual consumption. The role of nominal/real frictions as well as that of parameter uncertainty is also addressed.

Keywords: DSGE; model; Inflation; Welfare (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The implications of inflation in an estimated New-Keynesian model (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:6:p:947-962

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