CNB Research Seminar "Ramsey Optimal Inflation with Heterogeneous Firms"

Prague, 15 September 2026

Anton Nakov (European Central Bank)

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Anton Nakov is a Principal Economist at the European Central Bank. His research interests in include pricing, business cycles, and monetary policy.

Ramsey Optimal Inflation with Heterogeneous Firms (abstract)

We characterize the optimal long-run inflation in canonical sticky price models augmented with firm-level productivity shocks in the spirit of Golosov and Lucas. We show that the Ramsey-optimal inflation rate can be closely approximated as the rate that maximizes aggregate productivity. This optimal rate corresponds to a weighted average of the inflation rates that, within each firm cohort—defined by the productivity level at the time of the last price reset—best align relative prices with expected productivity dynamics. Under mean-reverting shocks, firms in high-productivity cohorts optimally require deflation, as their reset price must be low compared to their expected future relative price, consistent with the expected decline in productivity. Conversely, firms in low-productivity cohorts benefit from positive inflation. The social planner resolves this trade-off at a negative rate of inflation, as high-productivity cohorts—responsible for a disproportionate share of output—are weighted more heavily in the productivity aggregate. The resulting gains in aggregate productivity, relative to a standard 2% inflation target, can be up to 30 basis points per period.