Template-Type: ReDIF-Paper 1.0
Title: The Optimal Inflation Target
Author-Name: Klaus Adam
Author-Email: 
Author-Name: Henning Weber
Author-Email: 

Classification-JEL: E31
Keywords: optimal inflation, Ramsey policy, optimal rules, lower-bound constraint, wage rigidity, relative
price trends

Abstract: We review the academic literature investigating the economic determinants of the welfare 
optimal inflation target. We start with a bird’s-eye review of the academic literature covering
the past 60 years. Up to the year 2010, the academic literature recommended optimal inflation
targets that are either negative or zero. The subsequent literature incorporated new economic
features and can rationalize also positive inflation targets. In our review, we discuss these
features, especially the role of (i) productivity and unaccounted quality progress, (ii) the lowerbound
constraint on nominal rates, (iii) nominal wage rigidity, and (iv) product turnover and
product aggregation. In a final setup, we provide suggestions for further research on the topic.

Note: 
Length: 32
Creation-Date: 2024-07
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp572
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_572