Hyperbolic discounting and positive optimal inflation
In: Discussion paper series 8390
In: Labour economics
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In: Discussion paper series 8390
In: Labour economics
In: Journal of Monetary Economics, Band 57, Heft 2, S. 164-174
In: Working paper 412
The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.
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In: CESifo Working Paper Series No. 3464
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The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.
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Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run effects on real variables.
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Using a standard dynamic general equilibrium model, we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long-run e¤ects on real variables.
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In: IZA Discussion Paper No. 5694
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In: Journal of economic dynamics & control, Band 35, Heft 3, S. 295-311
ISSN: 0165-1889