The Optimal Inflation Target

Klaus Adam and Henning Weber

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We review the academic literature investigating the economic determinants of the welfare optimal inflation target. We start with a bird’s-eye review of the academic literature covering the past 60 years. Up to the year 2010, the academic literature recommended optimal inflation targets that are either negative or zero. The subsequent literature incorporated new economic features and can rationalize also positive inflation targets. In our review, we discuss these features, especially the role of (i) productivity and unaccounted quality progress, (ii) the lowerbound constraint on nominal rates, (iii) nominal wage rigidity, and (iv) product turnover and product aggregation. In a final setup, we provide suggestions for further research on the topic.

Keywords: optimal inflation; Ramsey policy; optimal rules; lower-bound constraint; wage rigidity; relative price trends (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Pages: 32
Date: 2024-07
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2024_572

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