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This paper presents a new mechanism through which monetary policy rules affect inflation persistence. When assuming … the traditional demand channel of monetary transmission have a long-lasting effect on inflation dynamics. The Calvo model … around positive trend inflation. With realistic calibration of trend inflation and the monetary policy rule, the model can …
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We analyze the implications of changes in the trend growth rate for optimal monetary policy in the presence of search and matching unemployment. We show that trend growth in itself does not generate a trade-off for the monetary authority, but that it interacts importantly with the inefficiencies...
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