Optimal Inflation Target in an Economy with Menu Costs and a Zero Lower Bound

• 成果类型: Article
• 署名作者: Blanco, Andres
• 署名单位: University of Michigan System; University of Michigan
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MACROECONOMICS
• ISSN/ISSBN: 1945-7707
• DOI: 10.1257/mac.20180198
• 发表日期: 2021
• 页码: 108-141
• 关键词: monetary-policy; prices; models; DYNAMICS; welfare

摘要

I study the optimal inflation target in a quantitative menu cost model with a zero lower bound on interest rates. I find that the optimal inflation target is 3.5 percent, which is higher than in models commonly used for monetary policy analysis. Key to this result is that inflation has a small effect on resource misallocation when the model features -firm-level shocks, which are necessary to match the empirical distribution of price changes. A higher inflation target decreases price flexibility at the zero lower bound, and through this mechanism, it reduces the severity of recessions when the monetary authority is constrained.