Optimal inflation for the U.S.
By: Roberto M. Billi.
Contributors: Federal Reserve Bank of Kansas City. Research Division.
Series: RWP -- 07-03
Publisher: Research Division, Federal Reserve Bank of Kansas City
Published: 2007
Place of publication: Kansas City [Mo.]
Language: eng
Format: Electronic resource
Description: 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 be positive but not large. Even allowing for the possibility of extreme model misspecification, the optimal inflation rate is robustly below 1 percent. The welfare costs of optimal inflation and the lower bound are limited.
Notes: Title from PDF file (viewed on June 22, 2007).

"April 2007."

Includes bibliographical references.

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