Andrade, Philippe; Galí, Jordi; Le Bihan, Hervé; … - 2019 - This version: October 2019
We study how changes in the steady-state real interest rate affect the optimal inflation target in a New Keynesian DSGE … model with trend inflation and a lower bound on the nominal interest rate. In this setup, a lower steady-state real interest … rate increases the probability of hitting the lower bound. That effect can be counteracted by an increase in the inflation …