Optimal long-run inflation and the New Keynesian model

► We examine a New Keynesian economy with rule-of-thumb price setters. ► We study the optimal steady-state rate of inflation under commitment. ► Monetary authority commits to a positive steady-state rate of inflation. ► Steady-state rate of inflation depends on the model's structural parameters. ► Optimal steady-state inflation hinges on a property of the aggregate supply.