Hyperbolic Discounting and Positive Optimal Inflation
Copyright policy )Hyperbolic Discounting and Positive Optimal Inflation
The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan, King, and Wolman [Review of Economic Studies10 (4), 825–860] uses a richer model but still finds deflation optimal. In an otherwise standard New Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.
- Hertie School Germany
- Institute for the Study of Labor Germany
- Kiel University Germany
- Kiel Institute for the World Economy Germany
- Leibniz Association Germany
unemployment, Geldpolitik, nominal inertia, optimal monetary policy, monetary policy, Neukeynesianische Makroökonomik, E50, New Keynesian model, inflation targeting; monetary policy; nominal inertia; optimal monetary policy; Phillips curve; unemployment, Ungleichgewichtstheorie, Phillips-Kurve, Phillips curve and unemployment, ddc:330, Phillips curve, optimal monetary policy, inflation targeting, unemployment, Phillips curve, nominal inertia, monetary policy, Optimale Inflationsrate, inflation targeting, Welfare economics, E40, E20, Theorie, jel: jel:E40, jel: jel:E20, jel: jel:E50
unemployment, Geldpolitik, nominal inertia, optimal monetary policy, monetary policy, Neukeynesianische Makroökonomik, E50, New Keynesian model, inflation targeting; monetary policy; nominal inertia; optimal monetary policy; Phillips curve; unemployment, Ungleichgewichtstheorie, Phillips-Kurve, Phillips curve and unemployment, ddc:330, Phillips curve, optimal monetary policy, inflation targeting, unemployment, Phillips curve, nominal inertia, monetary policy, Optimale Inflationsrate, inflation targeting, Welfare economics, E40, E20, Theorie, jel: jel:E40, jel: jel:E20, jel: jel:E50
selected citations These citations are derived from selected sources.This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).14 popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.Top 10% influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).Top 10% impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.Average
Citations provided by BIP!Popularity provided by BIP!