We present a sticky-price model incorporating heterogeneous firms and systematic firm-level productivity trends … zero and (2) inflation optimally responds to productivity disturbances. Using micro data from the US Census Bureau to … estimate the inflation-relevant productivity trends at the firm level, we find that the optimal US inflation rate is positive …

pessimism) pertains to total factor productivity which determines economic activity in the long run. Optimism shocks are … perceived changes in productivity which do not actually materialize. We develop a new strategy to identify optimism shocks in a …