This paper studies Tobin's proposition that inflation "greases" the wheels of the labor market. The analysis is carried out using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. Optimal inflation is determined by a benevolent government that maximizes...

In a monetary economy with downwardly rigid wages, the central banker should target a low, but strictly positive, inflation rate.

This paper studies Tobin's proposition that inflation "greases" the wheels of the labor market. The analysis is carried out using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. Optimal inflation is determined by a benevolent government that maximizes...

In a monetary economy with downwardly rigid wages, the central banker should target a low, but strictly positive, inflation rate.