No clear evidence for always using trend inflation in models, paper says
Adding positive trend inflation improves analysis of high-inflation periods
Adding positive trend inflation to new Keynesian models "does not produce results that differ significantly" from models without it, a working paper published by the Bank of Italy argues.
In Does trend inflation make a difference? Michele Loberto and Chiara Perricone note much of the monetary policy literature uses "models that assume zero steady-state inflation", but most post-war economies have had positive steady-state inflation. Trend inflation should "in theory, help to account for the
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