The optimal inflation buffer with a zero bound on nominal interest rates

  • This paper characterizes the optimal inflation buffer consistent with a zero lower bound on nominal interest rates in a New Keynesian sticky-price model. It is shown that a purely forward-looking version of the model that abstracts from inflation inertia would significantly underestimate the inflation buffer. If the central bank follows the prescriptions of a welfare-theoretic objective, a larger buffer appears optimal than would be the case employing a traditional loss function. Taking also into account potential downward nominal rigidities in the price-setting behavior of firms appears not to impose significant further distortions on the economy. JEL Klassifikation: C63, E31, E52 .

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Metadaten
Author:Roberto Billi
URN:urn:nbn:de:hebis:30-10932
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,17
Series (Serial Number):CFS working paper series (2005, 17)
Document Type:Working Paper
Language:English
Year of Completion:2005
Year of first Publication:2005
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Downward Nominal Rigidity; Inflation Inertia; Liquidity Trap; Nonlinear Policy
GND Keyword:Inflation
Issue:November 25, 2004
HeBIS-PPN:19741933X
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht