The optimal inflation rate and firm-level productivity growth

Arbeitspapier

Empirical data show that firms tend to improve their ranking in the productivity distribution over time. A stickyprice model with firm-level productivity growth fits this data and predicts that the optimal long-run inflation rate is positive and between 1.5% and 2% per year. In contrast, the standard sticky-price model cannot fit this data and predicts optimal long-run inflation near zero. Despite positive long-run inflation, the Taylor principle ensures determinacy in the model with firm-level productivity growth, and optimal inflation stabilization policies are standard. In a two-sector extension of this model, the optimal long-run inflation rate weights the sector with the stickier prices more heavily.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1773

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Business Fluctuations; Cycles ; Monetary Policy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination
• Subject: optimal monetary policy ; indeterminacy ; heterogenous firms ; firm entry and exit ; Optimale Inflationsrate ; Produktivität ; Unternehmenswachstum ; Preisrigidität ; Markteintritt ; Marktaustritt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Weber, Henning
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/58275