Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264541 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Money, Credit and Banking [ISSN:] 1538-4616 [Volume:] 54 [Issue:] 2-3 [Publisher:] Wiley Periodicals, Inc. [Place:] Hoboken, USA [Year:] 2021 [Pages:] 459-491
Publisher: 
Wiley Periodicals, Inc., Hoboken, USA
Abstract: 
The new Keynesian literature typically makes the assumption that firms always have to satisfy demand, which is at odds with profit‐maximizing behavior under Calvo pricing when long‐run inflation is positive. Our model, which relaxes this assumption, predicts that inflation causes a substantially smaller loss in effective aggregate productivity compared to a benchmark model without the possibility of rationing. Moreover, under positive inflation, firms choose smaller markups over marginal costs in our model than in the benchmark model. As a result, our analysis suggests that the standard new Keynesian model may exaggerate the welfare costs of inflation.
Subjects: 
new Keynesian model
optimal inflation target
trend inflation
welfare costs of inflation
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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