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| Title: | | The optimal inflation rate and firm-level productivity growth  |
| Authors: | | Weber, Henning |
| Issue Date: | | 2012 |
| Series/Report no.: | | Kiel Working Papers 1773 |
| Abstract: | | Empirical data show that firms tend to improve their ranking in the productivity distribution over time. A stickyprice model with firm-level productivity growth fits this data and predicts that the optimal long-run inflation rate is positive and between 1.5% and 2% per year. In contrast, the standard sticky-price model cannot fit this data and predicts optimal long-run inflation near zero. Despite positive long-run inflation, the Taylor principle ensures determinacy in the model with firm-level productivity growth, and optimal inflation stabilization policies are standard. In a two-sector extension of this model, the optimal long-run inflation rate weights the sector with the stickier prices more heavily. |
| Subjects: | | optimal monetary policy indeterminacy heterogenous firms firm entry and exit |
| JEL: | | E31 E32 E52 E61 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des IfW Kieler Arbeitspapiere, IfW
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