Author Description

This Paper Develops A Theory Of Inflation Inertia Based On Forward Looking Staggered Price Setting In The Nontradable Goods Sector Of A Small Open Economy. Unlike Current Theories Of Sticky Prices, Transitions To A Lower Steady State Inflation Rate Take Time Even If They Are Fully Credible, And They Are Associated With Significant Output Losses In Nontradables There Is A Welfare Trade-off Between These Output Losses And The Gains From Smaller Inflationary Distortions. Gains Exceed Losses For Most Calibrations. The Optimal Steady State Is The Friedman Rule. Guillermo Calvo, Michael Kumhof, Oya Celasun. Bibliographic Level Mode Of Issuance: Monograph English