The Macroeconomic Effects of Nonzero Trend Inflation

Robert Amano, Steven Ambler () and Nooman Rebei

Journal of Money, Credit and Banking, 2007, vol. 39, issue 7, 1821-1838

Abstract: We study the macroeconomic effects of nonzero trend inflation in a simple dynamic stochastic general equilibrium model under three common time-dependent pricing schemes: Calvo, truncated-Calvo, and Taylor. We show that, regardless of the pricing mechanism, trend inflation leads to a reduction in the stochastic means of output, consumption and employment, and an increase in the stochastic mean of inflation beyond its deterministic steady-state level. The variability of most aggregates also increases. These effects are quantitatively much stronger with Calvo pricing. Copyright 2007 The Ohio State University.

Date: 2007
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Journal Article: The Macroeconomic Effects of Nonzero Trend Inflation (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:39:y:2007:i:7:p:1821-1838

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