Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/17848
Authors: 
Ascari, Guido
Ropele, Tiziano
Year of Publication: 
2007
Series/Report no.: 
Kiel Working Paper 1332
Abstract: 
We show that low trend inflation strongly a¤ects the dynamics of a standard Neo-Keynesian model where monetary policy is described by a standard Taylor rule. Moreover, trend inflation enlarges the indeterminacy region in the parameter space, substantially altering the so-called Taylor principle. The main results hold for di¤erent types of Taylor rules, inertial policy rules and indexation schemes. The key message is that, whatever the set up, the literature on Taylor rules cannot disregard average inflation in both theoretical and empirical analysis.
Subjects: 
Sticky Prices
Taylor Rules and Trend Inflation
JEL: 
E52
E31
Document Type: 
Working Paper

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