Building on recent work in monetary theory and finance, we develop a framework where money serves a double liquidity … of inflation on welfare and asset prices. The main result of the paper is that, contrary to conventional wisdom, in our … model welfare can be increasing in inflation due to a new channel whereby higher inflation promotes beneficial trade in the …

What is the correctly measured inflation rate that monetary policy should aim for in the long-run? This paper … characterizes the optimal inflation rate for the U.S. economy in a New Keynesian sticky-price model with an occasionally binding … zero lower bound on the nominal interest rate. Real-rate and mark-up shocks jointly determine the optimal inflation rate to …

This paper examines the interaction of core inflation and monetary policy. Interest in core has grown because of … inflation targeting. Core inflation is defined in numerous ways giving rise to many potential measures; I define core inflation … as the best forecaster of inflation. A cross-country study finds that core inflation differs across monetary regimes. A …

This study reexamines optimal inflation rates with trending relative prices. The key feature of this analysis is the … heterogeneous production network. This study finds that (i) the production network matters for the optimal CPI inflation rates and … current Fed’s inflation target is close to the optimal inflation rate …

experiment of the past decade, stemming from a belief of the government that higher interest rates cause higher inflation … eventually a negative coefficient on inflation in the policy rule. In such an environment, was the exchange rate still a random … walk? Was inflation anchored? Does the “standard model” suffice to explain the broad contours of macroeconomic outcomes in …

The rise in inflation in 2021-22 sparked a growing literature and debate over the causes of the surge as well as the … near- and medium-term path for inflation. This review offers three key messages. First, the exceptional nature of shocks … resulting from the COVID-19 pandemic and geopolitical events drove the surge in inflation and the initial underestimation by …

Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses …-run Phillips curve between inflation and unemployment and a trade-off between price distortions and output hysteresis that change … the welfare-maximizing inflation level. For a plausible set of parameters, the optimal inflation target is in excess of …

Price-setting Microdata Analysis Network (PRISMA) for the level of inflation that central banks should target. The micro … significantly positive inflation rate in France, Germany and Italy: the steady-state inflation rate, jointly maximising welfare in … up optimal inflation targets further. The welfare costs of targeting an inflation rate of zero, as suggested by monetary …

This paper characterizes the optimal inflation buffer consistent with a zero lower bound on nominal interest rates in a … inflation inertia would significantly underestimate the inflation buffer. If the central bank follows the prescriptions of a …