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I study the effect of the trending relative price of investment on the optimal target rate of inflation. The price of … investment has a decreasing trend relative to that of consumption because of investment-specific technological progress. If the … prices of investment goods are sticky, a benevolent planner puts weight on stabilizing those prices, which works to raise the …
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In a VAR model of the US, the response of the relative price of durables to a monetary contraction is either flat or mildly positive. It significantly falls only if narrowly defined as the ratio between new house and nondurables prices. These findings survive three identification strategies and...
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