کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
5066735 | 1476793 | 2015 | 25 صفحه PDF | دانلود رایگان |
- I study optimal long-run inflation with occasionally binding financial constraints.
- The optimal long-run inflation rate is positive (1-3% annually).
- Positive inflation is a result of an endogenous asymmetric cost-push shock.
- The positive mean of the cost-push shock makes the mean of inflation positive.
- Positive inflation smoothes the financial constraint-induced “labor wedge”.
This paper studies the optimal long-run inflation rate in a simple New Keynesian model with occasionally binding collateral constraints that intermediate-good firms face on hiring labor. The paper finds that the optimal long-run annual inflation rate is around 1.5% if the economy is hit by a total factor productivity (TFP) shock and nearly 2.5% if the economy is subject to a markup shock. The shadow value of the collateral constraint is akin to an endogenous cost-push shock. Differently from usual cost-push shocks, however, this shock is asymmetric as it takes non-negative values only. Since the mean of this asymmetric endogenous cost-push shock is positive, inflation is also positive on average. In addition, a binding collateral constraint resembles a time-varying tax on labor, which the monetary authority can smooth by setting a positive inflation rate. More generally, the basic result is related to standard Ramsey theory in that optimal policy smoothes distortions over time.
Journal: European Economic Review - Volume 75, April 2015, Pages 18-42