TY  - RPRT
        AU  - Graham, Liam
AU  - Snower, Dennis J.
        TI  - Hyperbolic Discounting and Positive Optimal Inflation
        PY  - 2011/May/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 5694
        UR  - https://www.iza.org/publications/dp5694
        AB  - The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.
        KW  - Phillips curve
KW  - unemployment
KW  - inflation targeting
KW  - optimal monetary policy
KW  - nominal inertia
KW  - monetary policy
        ER  -