Lechthaler, Wolfgang; Merkl, Christian; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2008
measuring the extent of price adjustment costs, ¯π is the
steady state inflation rate and ∆is stochastic discount factor (i … rule:
µ
1+i
t
1+¯ı
¶
=
³
π
t
¯π
´
α
π
µ
y
t
y
¶
α
y
e
λ
t
, (24)
where π
t
is the gross inflation rate (i.e., P
t
/P
t−1 …
), ¯π is the central bank inflation
target, y
t
is the actual output, y is the steady state level of output and ¯ı is the …