inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady … the inflation target of eighttenths the size of the drop in the real natural rate of interest is warranted. Absent an … increase in the inflation target, and assuming the effective lower bound prevents the European Central Bank from implementing …

inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady … the inflation target of eight-tenths the size of the drop in the real natural rate of interest is warranted. Absent an … increase in the inflation target, and assuming the effective lower bound prevents the European Central Bank from implementing …

We address this question using an estimated New Keynesian DSGE model of the Euro Areawith trend inflation, imperfect … anadjustment of the monetary policy strategy. Under an unchanged monetary policy rule, anincrease in the inflation target of eight … tenth the size of the drop in the real natural rate ofinterest is warranted. Absent an increase in the inflation target, and …