Empirical analyses find that the long-run natural rate, or the real rate prevailing over a long-run equilibrium where nominal rigidities are absent, is subject to permanent shocks. How should monetary policy react to such shocks? Our paper answers this question in a variant of the new Keynesian model. Because of the zero lower bound (ZLB) on nominal interest rates, the mere possibility of future movements towards zero of the long-run natural rate imparts a downward bias on inflation

Tag-uri: Inflatie