Trend Inflation, Wage and Price Rigidities, and Welfare

Robert Amano, Kevin Moran, Stephen Murchison & Andrew Rennison
This paper studies the steady-state costs of inflation in a general-equilibrium model with real per capita output growth and staggered nominal price and wage contracts. Our analysis shows that trend inflation has important effects on the economy when combined with nominal contracts and real output growth. Steady-state output and welfare losses are quantitatively important even for low values of trend inflation. Further, we show that nominal wage contracting is quantitatively more important than nominal price...
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