A reevaluation of the macroeconomic effects of positive trend inflation

2018 ◽  
Vol 162 ◽  
pp. 116-123
Author(s):  
Salaheddine El Omari
Keyword(s):  
Positive Trend ◽  
Trend Inflation ◽  
Macroeconomic Effects

INNOVATION, GROWTH, AND OPTIMAL MONETARY POLICY

2019 ◽  
pp. 1-24
Author(s):  
Barbara Annicchiarico ◽  
Alessandra Pelloni
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Public Spending ◽  
New Keynesian ◽  
Positive Trend ◽  
Policy Recommendation ◽  
Optimal Monetary Policy ◽  
Keynesian Model ◽  
Trend Inflation ◽  
Short Run

This paper examines how innovation-led growth affects optimal monetary policy. We consider the Ramsey policy in a New Keynesian model where R&D leads to an expanding variety of intermediate goods and compare the results with those obtained when the expansion occurs exogenously. Positive trend inflation is found to be optimal under both assumptions, but much higher with profit-seeking innovation. Optimal monetary policy must be counter-cyclical in response to both technology and public spending shocks, yet the intensity of the reaction crucially depends on the presence of an R&D sector. However, the small amount of short-run deviations of prices from the non-zero trend inflation observed in response to shocks suggests inflation targeting as a robust policy recommendation.

scholarly journals The Macroeconomics of Trend Inflation

2014 ◽  
Vol 52 (3) ◽  
pp. 679-739 ◽  
Author(s):  
Guido Ascari ◽  
Argia M. Sbordone
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Positive Trend ◽  
Zero Lower Bound ◽  
Keynesian Model ◽  
Long Run ◽  
Trend Inflation ◽  
Inflation Targets

Most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state, but most central banks target an inflation rate of about 2 percent. Many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy. In this survey, we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers. We first review empirical research on the evolution and dynamics of U.S. trend inflation and some proposed new measures to assess the volatility and persistence of trend-based inflation gaps. We then construct a Generalized New Keynesian model that accounts for a positive trend inflation. In this model, an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations. This analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long-run inflation target. (JEL E12, E31, E32, E52, E58)

Trend inflation and monetary policy rules: determinacy analysis in New Keynesian model with capital accumulation

2015 ◽  
Vol 15 (1) ◽  
Author(s):  
Elena Gerko ◽  
Kirill Sossounov
Keyword(s):  
Capital Accumulation ◽  
New Keynesian ◽  
Positive Trend ◽  
Price Setting ◽  
New Keynesian Model ◽  
Time Analysis ◽  
Interest Rate Policy ◽  
Keynesian Model ◽  
Trend Inflation ◽  
Rate Policy

AbstractThe paper analyzes the effect of positive trend inflation in the framework of a standard New Keynesian model with Calvo price setting and capital accumulation. We are building on the work of Carlstrom and Fuerst (Carlstrom, Charles T., and Timothy S. Fuerst. 2005. “Investment and Interest Rate Policy: A Discrete-Time Analysis.”

scholarly journals The Macroeconomic Effects of Nonzero Trend Inflation

2007 ◽  
Vol 39 (7) ◽  
pp. 1821-1838 ◽  
Author(s):  
ROBERT AMANO ◽  
STEVE AMBLER ◽  
NOOMAN REBEI
Keyword(s):  
Trend Inflation ◽  
Macroeconomic Effects

scholarly journals Monetary Policy, Trend Inflation, and the Great Moderation: An Alternative Interpretation

2011 ◽  
Vol 101 (1) ◽  
pp. 341-370 ◽  
Author(s):  
Olivier Coibion ◽  
Yuriy Gorodnichenko
Keyword(s):  
Alternative Interpretation ◽  
New Keynesian ◽  
Positive Trend ◽  
Us Economy ◽  
Trend Inflation ◽  
The Us ◽  
Before And After ◽  
New Keynesian Models ◽  
Policy Trend ◽  
Theoretical Results

With positive trend inflation, the Taylor principle does not guarantee a determinate equilibrium. We provide new theoretical results on determinacy in New Keynesian models with positive trend inflation and new empirical findings on the Federal Reserve's reaction function before and after the Volcker disinflation to find that, (i) while the Fed likely satisfied the Taylor principle before Volcker, the US economy was still subject to self-fulfilling fluctuations in the 1970s, (ii) the US economy switched to determinacy during the Volcker disinflation, and (iii) the switch reflected changes in the Fed's response to macroeconomic variables and the decline in trend inflation. (JEL E12, E23, E31, E32, E52)

Sign in / Sign up

Export Citation Format

Share Document