This study reexamines optimal inflation rates with trending relative prices. The key feature of this analysis is the heterogeneous production network. This study finds that (i) the production network matters for the optimal CPI inflation rates and (ii) the indirect cascading effects through the...

We use a representative online survey to investigate the inflation expectations of German consumers and the credibility of the ECB’s inflation target during the recent high inflation period. We find that credibility has trended downwards since summer 2021, reaching an all-time low in April...

This paper analyzes monetary policy in a model with a potential unanchoring of inflation expectations. The degree of unanchoring is given by how sensitively the public’s long-run inflation expectations respond to inflation surprises. I find that optimal policy moves the interest rate...

The three-equation New-Keynesian model advocated by Woodford (2003) as a selfcontained system on which to base monetary policy analysis is shown to be inconsistent in the sense that its long-run static equilibrium solution implies that the interest rate is determined from two of the system’s...

We present new empirical evidence on monetary transmission by incorporating two types of shocks -- a standard temporary interest rate shock and a persistent inflation target shock. In an estimated DSGE model under imperfect information, where agents may be unable to distinguish these shocks, we...

This paper evaluates the role of inflation-forecast heterogeneity in US monetary policy making. The deviation between private and central bank inflation forecasts is identified as a factor increasing inflation persistence and thus calling for a policy reaction. An optimal policy rule is derived...