Optimal trend inflation
- We present a sticky-price model incorporating heterogeneous Firms and systematic firm-level productivity trends. Aggregating the model in closed form, we show that it delivers radically different predictions for the optimal inflation rate than canonical sticky price models featuring homogenous Firms: (1) the optimal steady-state inflation rate generically differs from zero and, (2) inflation optimally responds to productivity disturbances. Using micro data from the US Census Bureau to estimate the inflation-relevant productivity trends at the firm level, we find that the optimal US inflation rate is positive. It was slightly above 2 percent in the year 1986, but continuously declined thereafter, reaching about 1 percent in the year 2013.
Author: | Klaus AdamORCiDGND, Henning WeberGND |
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URN: | urn:nbn:de:hebis:30:3-438653 |
URL: | https://ssrn.com/abstract=3043109 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 579 |
Series (Serial Number): | CFS working paper series (579) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2017 |
Year of first Publication: | 2017 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2017/10/17 |
Tag: | firm heterogeneity; optimal inflation rate; sticky prices |
Issue: | July 12, 2017 |
Page Number: | 78 |
HeBIS-PPN: | 41915437X |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |