Kansas City Fed uncovers optimal inflation rate

Central bankers should aim for inflation of between 0.7% and 1.4% a year, research published by the Kansas City Fed states.

The estimate of optimal inflation is measured using the PCE index. It is derived from a standard modern macroeconomic model calibrated to US data.

The estimate is the first to be based on an economic model in which policymakers are assumed explicitly to maximize the economic well-being of the public. Further research is required to confirm or refine the results using models

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