inflation than that emanating from interest rate. In contrast, output is largely driven by credit and assets prices shocks. This … contemporaneously to output and inflationary pressures. Inflation is mostly driven by interest rate shock over the medium to long term …

-run trade-offs between output and inflation: lower trend inflation flattens the Phillips curve and decreases steady-state output … by increasing markups. We show that the aggregator reduces both the steady-state welfare cost of higher trend inflation … and the inflation-related weight in a model-based welfare function for higher trend inflation. Consequently, optimal trend …

fragility of leveraged firms in its pursuit of inflation-targeting interest rate policies. This paper develops a small …