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Project Citation: 

Adam, Klaus, and Weber, Henning. Replication data for: Optimal Trend Inflation. Nashville, TN: American Economic Association [publisher], 2019. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12.

Project Description

Summary:  View help for Summary Sticky price models featuring heterogeneous firms and systematic firm-level productivity trends deliver radically different predictions for the optimal inflation rate than their popular homogenous-firm counterparts: (i) the optimal steady-state inflation rate generically differs from zero and (ii) inflation optimally responds to productivity disturbances. We show this by aggregating a heterogeneous-firm model with sticky prices in closed form. Using firm-level data from the US Census Bureau, we estimate the historically optimal inflation path for the US economy: the optimal inflation rate ranges between 1 percent and 3 percent per year and displays a downward trend over the period 1977–2015.

Scope of Project

JEL Classification:  View help for JEL Classification
      C51 Model Construction and Estimation
      D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
      D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
      E31 Price Level; Inflation; Deflation
      E52 Monetary Policy

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