3%: the magical inflation target

Developed countries have been keeping their inflation low, between 0 and 3%, for some time now. Developing countries have been trying to do the same with varying success. But what is so special about this range? In particular, why is it detrimental if inflation goes above 3%, or below 0%?

This question is indeed a pressing one as cross-country regressions of GDP on inflation fail to find any significant effect of inflation on GDP.

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Stochastic dynamic programming III.

In this final post on dynamic programming I will simulate the model that was developed in the previous post. The simulation is done in Python and then plotted in Excel, but basically any program can be used to do it.

We will see which actual economic patterns the model is able to match and which ones it isn’t.

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