We challenge the widely held belief that New-Keynesian models cannot predict optimal positive in‡ ations. We finnd that these are justified by the Phelps argument. This mainly happens because we also consider distortionary expects of public transfers. Our predictions are broadly consistent with recent estimates of the Fed inflation targets. We also contradict theview that the Ramsey policy should minimize inflation volatility and induce near-random walk dynamics of public debt in the long-run. It should instead stabilize debt-to-GDP ratios to mitigate steady-state distortions. This latter result is strikingly similar to policy analyses in the aftermath of the 2008 crisis

The optimal inflation rate revisited

Tirelli P;
2011-01-01

Abstract

We challenge the widely held belief that New-Keynesian models cannot predict optimal positive in‡ ations. We finnd that these are justified by the Phelps argument. This mainly happens because we also consider distortionary expects of public transfers. Our predictions are broadly consistent with recent estimates of the Fed inflation targets. We also contradict theview that the Ramsey policy should minimize inflation volatility and induce near-random walk dynamics of public debt in the long-run. It should instead stabilize debt-to-GDP ratios to mitigate steady-state distortions. This latter result is strikingly similar to policy analyses in the aftermath of the 2008 crisis
2011
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11571/1314568
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