Positive Trend Inflation and Determinacy in a Medium-Sized New Keynesian Model
Jonas E. Arias,
Guido Ascari (),
Nicola Branzoli () and
No 7122, CESifo Working Paper Series from CESifo Group Munich
This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation fitted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops significantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap associated with the latter estimates.
Keywords: trend inflation; determinacy; monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E30 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Working Paper: Positive Trend Inflation and Determinacy in a Medium-Sized New Keynesian Model (2018)
Working Paper: Positive Trend In ation and Determinacy in a Medium-Sized New Keynesian Model (2018)
Working Paper: POSITIVE TREND INFLATION AND DETERMINACY IN A MEDIUM-SIZED NEW KEYNESIAN MODEL (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7122
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