A Note on Intrinsic Inflation Persistence and the Optimal Inflation Rate
Pages 248-253
Dario Pontiggia

DOI: http://dx.doi.org/10.6000/1929-7092.2016.05.21

Published: 17 July 2016

Abstract: This paper examines the implications of intrinsic inflation persistence, namely inertia that inflation inherits from its own past, on the conduct of optimal monetary policy. We study the optimal long-run rate of inflation in a basic New Keynesian model, which is augmented for intrinsic inflation persistence. We show that the commitment solution for the monetary authority leads to steady-state outcomes in which inflation is positive.