Price Trends Over the Product Life Cycle and the Optimal Inflation Target
In: CESifo Working Paper No. 7889
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In: CESifo Working Paper No. 7889
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In: The economic journal: the journal of the Royal Economic Society, Band 108, Heft 447, S. 529-542
ISSN: 1468-0297
In: CEPR Discussion Paper No. DP17187
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Working paper
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In: American economic review, Band 109, Heft 2, S. 702-737
ISSN: 1944-7981
Sticky price models featuring heterogeneous firms and systematic firm-level productivity trends deliver radically different predictions for the optimal inflation rate than their popular homogenous-firm counterparts: (i) the optimal steady-state inflation rate generically differs from zero and (ii) inflation optimally responds to productivity disturbances. We show this by aggregating a heterogeneous-firm model with sticky prices in closed form. Using firm-level data from the US Census Bureau, we estimate the historically optimal inflation path for the US economy: the optimal inflation rate ranges between 1 percent and 3 percent per year and displays a downward trend over the period 1977–2015. (JEL C51, D24, D25, E31, E52)
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In: Journal of economic dynamics & control, Band 139, S. 104350
ISSN: 0165-1889
In: ECB Working Paper No. 1048
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In: Discussion paper series DP 12160
In: Monetary economics and fluctuations
In: ECB Working Paper No. 2022/2761
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Recent research has suggested that in deriving optimal policy under discretion, policymakers should react as if there were no structural inflation persistence in order to improve welfare. This paper considers whether such a strong result extends to an inflation targeting central bank with a more general Phillips curve formulation. The findings indicate that if anything, a central banker that assumes a high degree of inflation inertia is often preferable.
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In: Sozialwissenschaftliche Annalen Reihe A, Band 1, Heft 1, S. 27-45