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These preferences represent an explicit zeroinflation target and an output target.
Thus, a zeroinflation target by itself allows the price level to drift.
Because both specifications yield results that are very close and because zeroinflation is a rare phenomenon, the simpler functional form was retained. 11.
Deviations from zeroinflation are related to the size of the monopolistic distortion.
It turns out that the optimal monetary policy faces a trade-off between the zeroinflation tax and productive efficiency.
In this context, the monetary authority optimally sets zeroinflation to eliminate relative price dispersion.
While zeroinflation is consistent with price stability, the latter is not a zeroinflation target for two reasons.
It is straightforward to show that zeroinflation ( = 0) implies zero seigniorage (s = 0).
Ensuring a unique, rational expectations equilibrium with zeroinflation, for example, requires that the central bank move interest rates sufficiently if inflation should deviate from zero.
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