Kara, Engin ORCID: https://orcid.org/0000-0003-0715-4857 and Yates, Tony 2021. A case against a four percent inflation target. Journal of Money, Credit and Banking 53 (5) , pp. 1097-1119. 10.1111/jmcb.12765 |
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Official URL: http://dx.doi.org/10.1111/jmcb.12765
Abstract
We reformulate the standard New Keynesian model to include heterogeneity in price stickiness suggested by microevidence on price changes and to allow for positive trend inflation. In the new model, higher trend inflation leads to a relatively greater long‐run output loss and, consequently, a smaller determinacy region than in the standard model. When trend inflation is 4%, the determinacy region of the new model is almost nonexistent, cautioning against increasing the inflation target to 4% as a means to avoid the zero lower bound in the future and pointing to the costs that high inflation may have had in the past.
Item Type: | Article |
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Date Type: | Publication |
Status: | Published |
Schools: | Business (Including Economics) |
Publisher: | Wiley |
ISSN: | 0022-2879 |
Date of First Compliant Deposit: | 9 April 2020 |
Date of Acceptance: | 8 January 2020 |
Last Modified: | 07 Nov 2023 03:09 |
URI: | https://orca.cardiff.ac.uk/id/eprint/130904 |
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