Economics, Econometrics and Finance
4 years ago

Trend inflation distorts key variables, Taylor contracts offer more stability.

Journal of Economic Dynamics and Control
On time-dependent nominal contracting models with positive trend inflation
Louis Phaneuf, Jean Gardy Víctor

Paper Summary

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The article compares two types of models to see how inflation trends affect the economy. One model shows that inflation trends can distort key variables, while the other is more stable. The model with stable contracts suggests that lowering inflation trends can lead to welfare gains for consumers.