-type nominal rigidities is that the economy fluctuates around a zero-inflation steady state. While average inflation has been low … in the recent past, it certainly has not been zero. We study the impact of nonzero average inflation in an alternative … policy does not become a source of unnecessary fluctuations. In particular, we find that for low values of average inflation …

stable inflation behavior will be generated -- is incorrect. This is because New Keynesian (NK) models are typically … consistent with the existence of RE paths with explosive inflation rates (in addition to one or more stable paths) that normally … imply the absence of explosive inflation. That result does not, however, justify negative conclusions about NK analysis. For …

stable inflation behavior will be generated -- is incorrect. This is because New Keynesian (NK) models are typically … consistent with the existence of RE paths with explosive inflation rates (in addition to one or more stable paths) that normally … imply the absence of explosive inflation. That result does not, however, justify negative conclusions about NK analysis. For …