Optimal Redistributive Inflation
Banco de España
Huggett (1993) incomplete markets model extended to open economy with nominal long-term bonds, costly inflation (Rotemberg pricing), and heterogeneous households facing uninsurable idiosyncratic income risk
intermediate firms: monopolistic competition with Rotemberg quadratic price adjustment costs; final firms: perfect competition with Dixit-Stiglitz aggregation
Proposition 3 p.17
Optimal long-run inflation in the limit as household discount rate equals world real interest rate (rho approaches r-bar)