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The Optimal Inflation Buffer with a Zero Bound on Nominal Interest Rates Author info | Abstract | Publisher info | Download info | Related research | Statistics Roberto M. Billi () (- Center for Financial Studies)
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This paper characterizes the optimal inflation buffer consistent with a zero lower bound on nominal interest rates in a New Keynesian sticky-price model. It is shown that a purely forward-looking version of the model that abstracts from inflation inertia would significantly underestimate the inflation buffer. If the central bank follows the prescriptions of a welfare-theoretic objective, a larger buffer appears optimal than would be the case employing a traditional loss function. Taking also into account potential downward nominal rigidities in the price-setting behavior of firms appears not to impose significant further distortions on the economy
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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number
25.
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Date of creation: 11 Nov 2005Date of revision:
Handle: RePEc:sce:scecf5:25Contact details of provider: Email: Web page: http://comp-econ.org/ More information through EDIRC
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Keywords: inflation inertia ; downward nominal rigidity ; nonlinear policy ; liquidity trap ; Other versions of this item:
Find related papers by JEL classification: C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Klaus Adam & Roberto Billi, 2005.
"Discretionary Monetary Policy and the Zero Lower Bound on Nominal Interest Rates ,"
CFS Working Paper Series
2005/16, Center for Financial Studies.
[Downloadable!]
Other versions:
Klaus Adam & Roberto M. Billi, 2005.
"Discretionary monetary policy and the zero lower bound on nominal interest rates ,"
Research Working Paper
RWP 05-08, Federal Reserve Bank of Kansas City.
[Downloadable!] Adam, Klaus & Billi, Roberto M., 2007.
"Discretionary monetary policy and the zero lower bound on nominal interest rates ,"
Journal of Monetary Economics ,
Elsevier, vol. 54(3), pages 728-752, April.
[Downloadable!] (restricted) Roberto M. Billi, 2007.
"Optimal inflation for the U.S ,"
Research Working Paper
RWP 07-03, Federal Reserve Bank of Kansas City.
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