Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098445 | Journal of Economic Dynamics and Control | 2014 | 13 Pages |
Abstract
Micro evidence indicates that each period a fraction of prices is kept unchanged under a positive trend inflation rate. In a sticky price model based on this evidence, recent research shows that high trend inflation is a serious cause for indeterminacy of rational expectations equilibrium under the Taylor rule. This paper examines implications of trend inflation for expectational stability of the equilibrium. An empirically plausible calibration of the model demonstrates that a fundamental rational expectations equilibrium is likely to be expectationally stable even in cases of indeterminacy induced by high trend inflation.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Takushi Kurozumi,