Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95318
Authors: 
Ascari, Guido
Branzoli, Nicola
Year of Publication: 
2010
Series/Report no.: 
Quaderni di Dipartimento 129
Abstract: 
We study the properties of the optimal nominal interest rate policy under different levels of price indexation. In our model indexation regulates the sources of inflation persistence. When indexation is zero, the inflation gap is purely forward- looking and inflation persistence depends only on the level of trend inflation, while full indexation makes the inflation gap persistent and it eliminates the effects of trend inflation. We show that in the former case the optimal policy is inertial and targets inflation stability while in the latter the optimal policy has no inertia and targets the real interest rate. We compare our results with empirical estimates of the FED's policy in the post-WWII era.
Subjects: 
Inflation Persistence
Taylor Rule
New Keynesian model
Indexation
JEL: 
E31
E52
Document Type: 
Working Paper

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