Optimal Inflation Stabilization in a Medium-Scale Macroeconomic Model
Duke University
Medium-scale New Keynesian DSGE model with Calvo sticky prices and wages with indexation, habit formation in consumption, investment adjustment costs, variable capacity utilization, money-in-utility for households, cash-in-advance constraint on
intermediate firms: monopolistic competition with Calvo pricing; final goods firms: perfect competition with CES aggregation
Section 4.1 p.28
Baseline Ramsey optimal inflation with α=0.8 (price stickiness 5 quarters), lump-sum taxes
Authors describe α=0.8 as baseline calibration from ACEL estimation; main result discussed throughout paper