This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window

American Economic Journal: Macroeconomics: Vol. 3 No. 3 (July 2011)

Expand

Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter Subscription Information
(Institutional Administrator Access)

Explore:

AEJ: Macro - All Issues

AEJ: Macro Forthcoming Articles

Optimal Inflation for the US Economy

Article Citation

Billi, Roberto M. 2011. "Optimal Inflation for the US Economy." American Economic Journal: Macroeconomics, 3(3): 29-52.

DOI: 10.1257/mac.3.3.29

Abstract

This paper studies the optimal long-run inflation rate (OIR) in a small New Keynesian model, where the only policy instrument is a short-term nominal interest rate that may occasionally run against a zero lower bound (ZLB). The model allows for worst-case scenarios of misspecification. The analysis shows first, if the government optimally commits, the OIR is below 1 percent annually. Second, if the government re-optimizes each period, the OIR rises markedly to 17 percent. Third, if the government commits only to an inertial Taylor rule, the inflation bias is eliminated at very low cost in terms of welfare for the representative household. (JEL E12, E31, E43, E52, E58)

Article Full-Text Access

Full-text Article

Additional Materials

Download Data Set (8.46 MB)

Authors

Billi, Roberto M. (Federal Reserve Bank of Kansas City)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E31: Price Level; Inflation; Deflation
E43: Interest Rates: Determination, Term Structure, and Effects
E52: Monetary Policy
E58: Central Banks and Their Policies

Comments

View Comments on This Article (0) | Login to post a comment


American Economic Journal: Macroeconomics


Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)

Explore:

AEJ: Macro - All Issues

AEJ: Macro - Forthcoming Articles

Virtual Field Journals


AEA Member Login:


AEAweb | AEA Journals | Contact Us