TY - JOUR
T1 - How much inflation is necessary to grease the wheels?
AU - Kim, Jinill
AU - Ruge-Murcia, Francisco J.
N1 - Funding Information:
We received helpful comments and suggestions from Klaus Adam, Michelle Alexopoulos, Paul Beaudry, Craig Burnside, Gauti Eggertsson, Steinar Holden, Junhan Kim, Emi Nakamura, Angelo Melino, Giorgio Primiceri, the editor (Robert King), and an anonymous referee. The first author thanks CIREQ and the Department of Economics of the University of Montréal for their hospitality. This research received the financial support of the Social Sciences and Humanities Research Council of Canada.
PY - 2009/4
Y1 - 2009/4
N2 - Tobin's proposition that inflation "greases" the wheels of the labor market is studied using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. The simulated method of moments is used to estimate the nonlinear model based on its second-order approximation. Optimal inflation is determined by a benevolent government that maximizes the households' welfare. Econometric results indicate that nominal wages are downwardly rigid and that the optimal level of grease inflation for the U.S. economy is about 0.35% per year, with a 95% confidence interval ranging from 0.04% to 0.87%.
AB - Tobin's proposition that inflation "greases" the wheels of the labor market is studied using a simple dynamic stochastic general equilibrium model with asymmetric wage adjustment costs. The simulated method of moments is used to estimate the nonlinear model based on its second-order approximation. Optimal inflation is determined by a benevolent government that maximizes the households' welfare. Econometric results indicate that nominal wages are downwardly rigid and that the optimal level of grease inflation for the U.S. economy is about 0.35% per year, with a 95% confidence interval ranging from 0.04% to 0.87%.
KW - Asymmetric adjustment costs
KW - Downward wage rigidity
KW - Nonlinear dynamics
KW - Optimal inflation
UR - http://www.scopus.com/inward/record.url?scp=67349123072&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2009.03.004
DO - 10.1016/j.jmoneco.2009.03.004
M3 - Article
AN - SCOPUS:67349123072
SN - 0304-3932
VL - 56
SP - 365
EP - 377
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 3
ER -