The Brookings Institution, from Washington DC, has highlighted the paper by BSE Research Professor Jordi Galí (CREI, UPF and BSE) on “The optimal inflation target and the natural rate of interest” (with P. Andrade, H Le Bihan, and Julien Matheron). The work focuses on how changes in the steady-state natural interest rate affect the optimal inflation target, finding that starting from pre-crisis values, a 1 percentage point decline in the natural rate should be accommodated by an increase in the optimal inflation target of about 0.9 to 1 percentage point.
