On quality bias and inflation targets
Columbia University; NBER; CEPR
Neo-Keynesian model with Calvo-Yun price staggering augmented to allow for exogenous quality improvement in consumption goods, with labor subsidy to eliminate monopolistic distortion
monopolistically competitive firms with linear production function and Calvo price staggering
Table 1 p.398
Ramsey optimal policy when nonquality-adjusted (sticker) prices are sticky and statistical agency does not correct quality bias
Main theoretical result of the paper: optimal inflation target is zero when sticker prices are sticky, contradicting conventional wisdom