Seminario: 11 Novembre 2015 - Giovanni Di Bartolomeo

Mercoledì, 11 Novembre, 2015

Mercoledì 11 Novembre 2015, h. 13:00 - presso l'Aula Fanfani del Dipartimento MEMOTEF (Sapienza Università di Roma, Via del Castro Laurenziano 9, Roma - Facoltà di Economia, 5° piano)

Giovanni Di Bartolomeo (Sapienza University of Rome)

terrà un seminario dal titolo: "THE DEBATE ON OPTIMAL TREND INFLATION"


In the US and the euro area, average inflation rates have been close to 5% between 1970 and 1999. Even in periods of relatively stable inflation, average inflation rates were higher than or equal to 2%.
For instance, between 1990 and 2008, average inflation was about 2.8% in the US, 2.2% in Germany, and 4% in OECD countries. Moreover, positive trends of inflation are usually targeted by policy makers in all countries (their targets are between 2% and 4%).
A natural question then is, how are these explicit or implicit targets set and how do they interact with stabilization policies and economic volatility?
There are some theories that explain optimal trend inflation (i.e., the rate of inflation in the long run). However,considering these theories in a modern New Keynesian DSGE framework, Schmitt-Grohé and Uribe (2004) show that optimal trend inflation is always close to zero. Even a small degree of stickiness is enough to justify optimal zero inflation (flexible prices imply an optimal negative inflation trend rate). They also show that zero inflation targets are associated with a stabilization policy focused on the stabilization of inflation variability. Their result is robust to many other considerations (see Schmitt-Grohé and Uribe, 2011).
A sort of puzzle thus emerges. The theory calls for a zero inflation target and inflation-conservative stabilization policies, but inflation rates and central bank’s target observed in the real world are always positive (Schmitt-Grohé and Uribe, 2011).
We aim to discuss how reconcile theory and evidence. Some papers on this topic can be downloaded at:

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