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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
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http://hdl.handle.net/10419/46553
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| Title: | | Hyperbolic discounting and positive optimal inflation  |
| Authors: | | Graham, Liam Snower, Dennis J. |
| Issue Date: | | 2011 |
| Series/Report no.: | | CESifo working paper: Labour Markets 3464 |
| Abstract: | | The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations. |
| Subjects: | | optimal monetary policy inflation targeting unemployment Phillips curve nominal inertia monetary policy |
| JEL: | | E20 E40 E50 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des IfW Economists Online CESifo Working Papers, CESifo Group Munich
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