Inflation , Nominal Debt , Housing , and Welfare ∗
نویسندگان
چکیده
This paper evaluates the welfare effects of lowering the long-run inflation target in a life-cycle model of housing, nominal debts, and money (ie., a liquid asset). To smooth out idiosyncratic earnings risk, agents make portfolio choices in the presence of transactions costs and borrowing constraints. We find that lowering inflation from 2% to 1% improves welfare and that the welfare gain is even larger when the reform achieves full price stability (zero inflation).
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