Arbeitspapier

Trend inflation, Taylor principle and indeterminacy

In this paper, we show that low trend inflation strongly affects the dynamics of a standard Neo-keynesian model where monetary policy is described by a standard Taylor rule. In particular, we show that trend inflation: (i) enlarges the indeterminacy region in the parameter space, substantially altering the so-called Taylor principle; (ii) changes the dynamic responses of the economy. Furthermore, we generalize the basic analysis to different types of Taylor rules, inertial policy rules and indexation schemes. The key point 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: Quaderni di Dipartimento - EPMQ ; No. 178

Classification
Wirtschaft
Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Business Fluctuations; Cycles
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)
Università degli Studi di Pavia, Dipartimento di Economia Politica e Metodi Quantitativi (EPMQ)
(where)
Pavia
(when)
2005

Handle
Last update
12.07.2024, 1:23 PM CEST

Object type

  • Arbeitspapier

Associated

  • Ascari, Guido
  • Ropele, Tiziano
  • Università degli Studi di Pavia, Dipartimento di Economia Politica e Metodi Quantitativi (EPMQ)

Time of origin

  • 2005

Other Objects (12)