IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2022q3a1.html
   My bibliography  Save this article

Optimal Inflation Rates in a Non-linear New Keynesian Model: The Case of Japan and the United States

Author

Listed:
  • Tomohide Mineyama

    (International Monetary Fund)

  • Wataru Hirata

    (Bank of Japan)

  • Kenji Nishizaki

    (Bank of Japan)

Abstract

We investigate the optimal inflation rate using a New Keynesian model subject to non-linearity arising from downward nominal wage rigidity (DNWR) and prolonged spells of the zero lower bound of nominal interest rates (ZLB). We rigorously evaluate the model non-linearity and calibrate the model to the Japanese and U.S. economies. We find that the optimal inflation rate is close to 2 percent for both countries, though the main driver differs by country: ZLB for Japan, but DNWR for the United States. In addition, around 1 percentage point absolute deviation from the rate of close to 2 percent induces only a minor change in social welfare.

Suggested Citation

  • Tomohide Mineyama & Wataru Hirata & Kenji Nishizaki, 2022. "Optimal Inflation Rates in a Non-linear New Keynesian Model: The Case of Japan and the United States," International Journal of Central Banking, International Journal of Central Banking, vol. 18(3), pages 1-45, September.
  • Handle: RePEc:ijc:ijcjou:y:2022:q:3:a:1
    as

    Download full text from publisher

    File URL: http://www.ijcb.org/journal/ijcb22q3a1.pdf
    Download Restriction: no

    File URL: http://www.ijcb.org/journal/ijcb22q3a1.htm
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2022:q:3:a:1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bank for International Settlements (email available below). General contact details of provider: https://www.ijcb.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.