Optimal inflation rate and fair wage

Shogo Miura

The Quarterly Review of Economics and Finance, 2023, vol. 88, issue C, 158-167

Abstract: This paper studies the optimal inflation rate in a New Keynesian model where workers’ effort depends on the change in nominal wage. The main finding is that under plausible parameter values, the optimal long-run inflation rate can be positive and well above zero. This result holds when technology growth is so high that the downward wage rigidity or the zero lower bound on the interest rate would not be relevant. Also, we find that the effort effect dampens macroeconomic fluctuations. This contrasts with the existing literature, which predicts the opposite result.

Keywords: Monetary policy; Fair wage; Optimal inflation rate; Ramsey problem (search for similar items in EconPapers)
JEL-codes: E32 E52 E71 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:88:y:2023:i:c:p:158-167

DOI: 10.1016/j.qref.2022.12.013

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