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The implications of inflation in an estimated new Keynesian model

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  • Guerron-Quintana, Pablo A.

Abstract

This paper studies the steady state and dynamic consequences of inflation in an estimated dynamic stochastic general equilibrium model of the U.S. economy. It is found that 10 percentage points of inflation entail a steady state welfare cost as high as 13% of annual consumption. This large cost is mainly driven by staggered price contracts and price indexation. The transition from high to low inflation inflicts a welfare loss equivalent to 0.53% of annual consumption. The role of nominal/real frictions as well as that of parameter uncertainty is also addressed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 6 (June)
Pages: 947-962

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:6:p:947-962

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Keywords: DSGE model Inflation Welfare;

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Cited by:
  1. Rao, B. Bhaskara & Paradiso, Antonio, 2011. "Estimates of the US Phillips curve with the general to specific method," MPRA Paper 28411, University Library of Munich, Germany.

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