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Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractThe observed 2% long run in ‡ation target in most developed industrial nations is in variance with the zero or negative optimal in ‡ation rates predicted by prominent monetary theories. Using a calibrated simple New-Keynesian model with endogenous growth and nominal rigidity, we compare two price setting environments of Calvo (1983) and Rotemberg (1982). In our growth model, the steady state welfare maximizing in ‡ation takes into account the growth e¤ect as well as the price distortionary e¤ects of in ‡ation. The long-run welfare maximizing trend in ‡ation could be positive in economies with nominal rigidity in the form of partial in ‡ation indexation and price stickiness. A higher degree of in ‡ation indexation lowers the steady state price distortion in the Calvo model and steady state price adjustment cost in Rotemberg model and raises the long run optimal in ‡ation. Since the productive ine¢ ciency caused by partial in ‡ation indexation is higher in Calvo economy compared to Rotemberg, the long run optimal trend in ‡ation is higher in Rotemberg than in Calvo. In both models, a two percent long run in ‡ation target is attainable for a reasonable degree of in ‡ation indexation.

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The article develops a static general equilibrium framework, in terms of which effects of the ongoing COVID-19 pandemic on output and employment of different sectors are analysed for a country like India where there are many regions, interregional migration and a large informal sector. In particular, three pandemic-induced shocks, namely, stoppage of interregional migration, supply bottlenecks and demand shrinkages are considered in a short-run set-up where prices and wages are rigid. It is shown that supply shocks in one region or sector generates binding demand constraints in others. Monetary transfer by the government increases employment and output. JEL Classifications: D5, E2