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Optimal inflation rate and fair wage

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  • Miura, Shogo

Abstract

This paper studies the optimal inflation rate in a New Keynesian model where workers’ effort depends on the change in nominal wage. The main finding is that under plausible parameter values, the optimal long-run inflation rate can be positive and well above zero. This result holds when technology growth is so high that the downward wage rigidity or the zero lower bound on the interest rate would not be relevant. Also, we find that the effort effect dampens macroeconomic fluctuations. This contrasts with the existing literature, which predicts the opposite result.

Suggested Citation

  • Miura, Shogo, 2023. "Optimal inflation rate and fair wage," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 158-167.
    • Handle: RePEc:eee:quaeco:v:88:y:2023:i:c:p:158-167
    DOI: 10.1016/j.qref.2022.12.013
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; Fair wage; Optimal inflation rate; Ramsey problem;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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