Journal article
On the welfare and cyclical implications of moderate trend inflation
- Abstract:
- The welfare and cyclical implications of moderate trend inflation are addressed in an augmented medium-scale DSGE model. Increasing trend inflation from 2 to 4 percent generates a consumption-equivalent welfare loss of about 4 percent. Welfare costs of this magnitude are driven by: staggered wage contracts, trend growth, extended borrowing, a roundabout production structure, and the interaction between trend inflation and shocks to the marginal efficiency of investment (MEI). A sticky-price model abstracting from these features generates much smaller losses. Moderate trend inflation also has important business-cycle implications, interacting much more strongly with MEI shocks than with productivity or monetary shocks.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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- Files:
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(Preview, Accepted manuscript, pdf, 494.9KB, Terms of use)
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- Publisher copy:
- 10.1016/j.jmoneco.2018.06.001
Authors
- Publisher:
- Elsevier
- Journal:
- Journal of Monetary Economics More from this journal
- Volume:
- 99
- Pages:
- 56-71
- Publication date:
- 2018-06-15
- Acceptance date:
- 2018-06-07
- DOI:
- ISSN:
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0304-3932
- Language:
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English
- Keywords:
- Pubs id:
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pubs:628014
- UUID:
-
uuid:f2418746-a6d5-4b80-9c61-21291eb145ac
- Local pid:
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pubs:628014
- Source identifiers:
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628014
- Deposit date:
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2018-10-29
- ARK identifier:
Terms of use
- Copyright holder:
- Elsevier BV
- Copyright date:
- 2018
- Rights statement:
- © 2018 Elsevier B.V.
- Notes:
- This is the accepted manuscript version of the article. The final version is available online from Elsevier at https://doi.org/10.1016/j.jmoneco.2018.06.001
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