(1980), promised inflation and output gap---as opposed to lagged Lagrange multipliers---act as pseudo-state variables. Using … three well known variants of the model---one featuring inflation bias, one featuring stabilization bias, and one featuring a …

In expectations-driven liquidity traps, a higher inflation target is associated with lower inflation and consumption … optimal inflation target. Using a calibrated New Keynesian model with an effective lower bound (ELB) constraint on nominal … optimal inflation target nontrivially. Our analysis provides a reason to be cautious about the argument that central banks …