dynamics of inflation implied by macroeconomic data, the model needs to assume an average duration of price contracts which is …

We use a simple New Keynesian model, with firm specific capital, non-zero steady-state inflation, long-run risks and … rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard … deviations from the policy rule and the results are re-enforced by the presence of non-zero trend inflation. …

. Our analysis improves upon existing work by endogenising the volatility of both output and inflation. Improved …

variances for all series, and decreases in the variances of inflation and the output gap, without any need of sunspot shocks …