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|Title:||Hyperbolic discounting and positive optimal inflation |
Snower, Dennis J.
|Issue Date:||2011 |
|Series/Report no.:||CEPR Discussion Paper Series, Centre for Economic Policy Research (CEPR), London 8390|
|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.|
optimal monetary policy
Phillips curve and unemployment
|Document Type:||Working Paper|
|Appears in Collections:||Publikationen von Forscherinnen und Forschern des IfW|
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