The optimal inflation rate and firm-level productivity growth
Kiel Institute for the World Economy
New Keynesian sticky-price model augmented with firm-level productivity growth, heterogeneous firms by age, and exogenous firm entry and exit. Firms improve productivity over their lifetime, creating systematic movement through the productivity
monopolistic competition, Calvo pricing, firm-level productivity growth at rate g, heterogeneous productivity by firm age
Proposition 1 p.14
One-sector model, optimal inflation equals firm-level productivity growth rate g (calibrated at 3% for goods sector)