In:
American Economic Review, American Economic Association, Vol. 109, No. 2 ( 2019-02-01), p. 702-737
Abstract:
Sticky price models featuring heterogeneous firms and systematic firm-level productivity trends deliver radically different predictions for the optimal inflation rate than their popular homogenous-firm counterparts: (i) the optimal steady-state inflation rate generically differs from zero and (ii) inflation optimally responds to productivity disturbances. We show this by aggregating a heterogeneous-firm model with sticky prices in closed form. Using firm-level data from the US Census Bureau, we estimate the historically optimal inflation path for the US economy: the optimal inflation rate ranges between 1 percent and 3 percent per year and displays a downward trend over the period 1977–2015. (JEL C51, D24, D25, E31, E52)
Type of Medium:
Online Resource
ISSN:
0002-8282
DOI:
10.1257/aer.20171066
Language:
English
Publisher:
American Economic Association
Publication Date:
2019
detail.hit.zdb_id:
203590-X
detail.hit.zdb_id:
2009979-4
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