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. …

It is an open question whether and how indexed wage contracts reduce welfare or raise average inflation. This paper … analyzes the impact of indexed wage contracts on inflation and social welfare in a Barro–Gordon model with discretionary … monetary policy by endogenizing social costs of indexation. Main results are: Wage indexation reduces the inflation bias but …

In a standard New Keynesian model, a myopic central bank concerned with stabilizing inflation and changes in the output … stabilizing output gap changes, the central bank imparts inertia into output and inflation that is absent under pure discretion … social outcomes if it focuses on inflation and changes in the output gap than are achieved under inflation targeting. …

stronger bargaining position when they try to prevent a cut in money wages. If inflation is so low that some money wages have … to be cut, workers‘ stronger bargaining position requires higher unemployment in equilibrium. However, inflation is more … stable when money wage rigidity binds, providing an incentive for monetary policy makers to choose a low target for inflation …