The Optimal Rate of Inflation with Trending Relative Prices
The relative prices of different categories of consumption goods have been trending over time. Assuming they are exogenous with respect to monetary policy, these trends imply that monetary policy cannot stabilize the prices of all consumption categories. If prices are sticky, monetary policy then must trade off relative price distortions within different categories of consumption. Optimally, more weight should be placed on stabilizing goods and services prices that are less flexible. Calibrating a simple sticky price model to U.S. data, we find that slight deflation is optimal, even absent transactions frictions leading to a demand for money. Optimality of deflation derives from the fact that relative prices have been trending up for services, whose nominal prices seem to be less flexible.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 43 (2011)
Issue (Month): (03)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879|
References listed on IDEAS
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.:
- Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October.
- Charles T. Carlstrom & Timothy S. Fuerst & Fabio Ghironi, 2002.
"Does it matter (for equilibrium determinacy) what price index the central bank targets?,"
0202, Federal Reserve Bank of Cleveland.
- Carlstrom, Charles T. & Fuerst, Timothy S. & Ghironi, Fabio, 2006. "Does it matter (for equilibrium determinacy) what price index the central bank targets?," Journal of Economic Theory, Elsevier, vol. 128(1), pages 214-231, May.
- Charles T. Carlstrom & Timothy S. Fuerst & Fabio Ghironi, 2002. "Does It Matter (for Equilibrium Determinacy) What Price Index the Central Bank Targets?," Boston College Working Papers in Economics 533, Boston College Department of Economics, revised 07 Feb 2003.
- Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999.
"Optimal Monetary Policy with Staggered Wage and Price Contracts,"
Computing in Economics and Finance 1999
1151, Society for Computational Economics.
- Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
- Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
- Benigno, Pierpaolo, 2004.
"Optimal monetary policy in a currency area,"
Journal of International Economics,
Elsevier, vol. 63(2), pages 293-320, July.
- Loyo, Eduardo, 2002. "Imaginary money against sticky relative prices," European Economic Review, Elsevier, vol. 46(6), pages 1073-1092, June.
- Jeremy Greenwood & Gokce Uysal, 2005.
"New Goods and the Transition to a New Economy,"
Journal of Economic Growth,
Springer, vol. 10(2), pages 99-134, 06.
- Jeremy Greenwood & Gokce Uysal, 2003. "New Goods and the Transition to a New Economy," Economie d'Avant Garde Research Reports 5, Economie d'Avant Garde.
- Jeremy Greenwood & Gokce Uysal, 2004. "New Goods and the Transition to a New Economy," NBER Working Papers 10793, National Bureau of Economic Research, Inc.
- Kevin X. D. Huang & Zheng Liu, 2003.
"Inflation Targeting: What Inflation Rate to Target?,"
0318, Department of Economics, Emory University (Atlanta).
- Huang, Kevin X.D. & Liu, Zheng, 2005. "Inflation targeting: What inflation rate to target?," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1435-1462, November.
- Kevin X. D. Huang & Zheng Liu, 2004. "Inflation targeting: what inflation rate to target?," Working Papers 04-6, Federal Reserve Bank of Philadelphia.
- Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
- Toyoichiro Shirota, 2007. "Optimal Trend Inflation and Monetary Policy under Trending Relative Prices," Bank of Japan Working Paper Series 07-E-1, Bank of Japan.
When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:43:y:2011:i::p:355-384. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.