On the welfare and cyclical implications of moderate trend inflation
The welfare and cyclical implications of moderate trend inflation are addressed in an augmented medium-scale DSGE model. Increasing trend inflation from 2 to 4 percent generates a consumption-equivalent welfare loss of about 4 percent. Welfare costs of this magnitude are driven by: staggered wage co...
| Main Authors: | , , |
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| Format: | Journal article |
| Language: | English |
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Elsevier
2018
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| _version_ | 1797103391377195008 |
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| author | Ascari, G Phaneuf, L Sims, ER |
| author_facet | Ascari, G Phaneuf, L Sims, ER |
| author_sort | Ascari, G |
| collection | OXFORD |
| description | The welfare and cyclical implications of moderate trend inflation are addressed in an augmented medium-scale DSGE model. Increasing trend inflation from 2 to 4 percent generates a consumption-equivalent welfare loss of about 4 percent. Welfare costs of this magnitude are driven by: staggered wage contracts, trend growth, extended borrowing, a roundabout production structure, and the interaction between trend inflation and shocks to the marginal efficiency of investment (MEI). A sticky-price model abstracting from these features generates much smaller losses. Moderate trend inflation also has important business-cycle implications, interacting much more strongly with MEI shocks than with productivity or monetary shocks. |
| first_indexed | 2024-03-07T06:19:30Z |
| format | Journal article |
| id | oxford-uuid:f2418746-a6d5-4b80-9c61-21291eb145ac |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T06:19:30Z |
| publishDate | 2018 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:f2418746-a6d5-4b80-9c61-21291eb145ac2022-03-27T12:02:09ZOn the welfare and cyclical implications of moderate trend inflationJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:f2418746-a6d5-4b80-9c61-21291eb145acEnglishSymplectic Elements at OxfordElsevier2018Ascari, GPhaneuf, LSims, ERThe welfare and cyclical implications of moderate trend inflation are addressed in an augmented medium-scale DSGE model. Increasing trend inflation from 2 to 4 percent generates a consumption-equivalent welfare loss of about 4 percent. Welfare costs of this magnitude are driven by: staggered wage contracts, trend growth, extended borrowing, a roundabout production structure, and the interaction between trend inflation and shocks to the marginal efficiency of investment (MEI). A sticky-price model abstracting from these features generates much smaller losses. Moderate trend inflation also has important business-cycle implications, interacting much more strongly with MEI shocks than with productivity or monetary shocks. |
| spellingShingle | Ascari, G Phaneuf, L Sims, ER On the welfare and cyclical implications of moderate trend inflation |
| title | On the welfare and cyclical implications of moderate trend inflation |
| title_full | On the welfare and cyclical implications of moderate trend inflation |
| title_fullStr | On the welfare and cyclical implications of moderate trend inflation |
| title_full_unstemmed | On the welfare and cyclical implications of moderate trend inflation |
| title_short | On the welfare and cyclical implications of moderate trend inflation |
| title_sort | on the welfare and cyclical implications of moderate trend inflation |
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