The optimal inflation target: bridging the gap between theory and policy

Klaus Adam and Henning Weber

Chapter 5 in Research Handbook on Inflation, 2025, pp 99-124 from Edward Elgar Publishing

Abstract: Our review examines the academic literature that quantitatively analyzes the economic determinants of the welfare-optimal inflation target. Specifically, we explore the normative question of the long-run inflation rate a central bank should commit to. We discuss traditional arguments supporting zero or negative optimal targets, as well as more recent factors that justify positive targets. These include (i) relative price trends, (ii) the lower bound constraint, (iii) wage rigidity, and (iv) product entry and aggregation.

Keywords: Inflation; Inflation target; Welfare (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035327751
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