Abstract
The article focuses on the existing gap between theoretically optimal (often close to zero) and empirically observed (targeted by central banks, explicitly positive) rate of inflation. In order to reduce this gap, the article proposes some theoretical explanations of a positive rate of optimal inflation, the main cause of which are labor market frictions, financial market frictions and risk of achieving zero lower bound of nominal interest rates in the economy (also known as ZLB problem). Using a case-study approach, the article shows that ZLB factor contributes to a significant increase of optimal inflation rate in the countries with relevant experience. Consequently, ZLB factor provides a necessary, though not sufficient, argument in central banks’ discussion concerning inflation target.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
