Arbeitspapier

Trend Inflation, Taylor Principle and Indeterminacy

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We show that low trend inflation strongly a¤ects the dynamics of a standard Neo-Keynesian model where monetary policy is described by a standard Taylor rule. Moreover, trend inflation enlarges the indeterminacy region in the parameter space, substantially altering the so-called Taylor principle. The main results hold for di¤erent types of Taylor rules, inertial policy rules and indexation schemes. The key message is that, whatever the set up, the literature on Taylor rules cannot disregard average inflation in both theoretical and empirical analysis.

Language: Englisch

Bibliographic citation: Series: Kiel Working Paper ; No. 1332

Classification: Wirtschaft
Monetary Policy
Price Level; Inflation; Deflation

Subject: Sticky Prices
Taylor Rules and Trend Inflation
Preisrigidität
Inflation
Taylor-Regel
New-Keynesian Phillips Curve
Theorie

Event: Geistige Schöpfung

(who): Ascari, Guido
Ropele, Tiziano

Event: Veröffentlichung

(who): Kiel Institute for the World Economy (IfW)

(where): Kiel

(when): 2007

Handle: http://hdl.handle.net/10419/17848

Last update: 10.03.2025, 11:44 AM CET

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Object type

Arbeitspapier

Associated

Ascari, Guido
Ropele, Tiziano
Kiel Institute for the World Economy (IfW)

Time of origin

2007

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