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The optimal inflation target and the natural rate of interest

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dc.contributor.author Andrade, Philippe
dc.contributor.author Galí, Jordi, 1961-
dc.contributor.author Le Bihan, Hervé
dc.contributor.author Matheron, Julien
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.accessioned 2018-02-14T15:30:10Z
dc.date.available 2018-02-14T15:30:10Z
dc.date.issued 2017-12-11
dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1591
dc.identifier.citation
dc.identifier.uri http://hdl.handle.net/10230/33906
dc.description.abstract We study how changes in the value of the steady-state real interest rate affect the optimal inflation target, both in the U.S. and the euro area, using an estimated New Keynesian DSGE model that incorporates the zero (or effective) lower bound on the nominal interest rate. We find that this relation is downward sloping, but its slope is not necessarily one-for-one: increases in the optimal inflation rate are generally lower than declines in the steady-state real interest rate. Our approach allows us not only to assess the uncertainty surrounding the optimal inflation target, but also to determine the latter while taking into account the parameter uncertainty facing the policy maker, including uncertainty with regard to the determinants of the steady-state real interest rate. We find that in the currently empirically relevant region for the US as well as the euro area, the slope of the curve is close to -0.9. That finding is robust to allowing for parameter uncertainty.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 1591
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title The optimal inflation target and the natural rate of interest
dc.title.alternative
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2018-02-14T15:29:36Z
dc.subject.keyword inflation target
dc.subject.keyword effective lower bound.
dc.subject.keyword Macroeconomics and International Economics
dc.rights.accessRights info:eu-repo/semantics/openAccess

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