The optimal inflation buffer with a zero bound on nominal interest rates
- This paper characterizes the optimal inflation buffer consistent with a zero lower bound on nominal interest rates in a New Keynesian sticky-price model. It is shown that a purely forward-looking version of the model that abstracts from inflation inertia would significantly underestimate the inflation buffer. If the central bank follows the prescriptions of a welfare-theoretic objective, a larger buffer appears optimal than would be the case employing a traditional loss function. Taking also into account potential downward nominal rigidities in the price-setting behavior of firms appears not to impose significant further distortions on the economy. JEL Klassifikation: C63, E31, E52 .
| Author: | Roberto Billi |
|---|---|
| URN: | urn:nbn:de:hebis:30-10932 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,17 |
| Series (Serial Number): | CFS working paper series (2005, 17) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2005 |
| Year of first Publication: | 2005 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2005/06/13 |
| Tag: | Downward Nominal Rigidity; Inflation Inertia; Liquidity Trap; Nonlinear Policy |
| GND Keyword: | Inflation |
| Issue: | November 25, 2004 |
| HeBIS-PPN: | 19741933X |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  Deutsches Urheberrecht |
