Staggered Price Contracts And Inflation Persistence: Some General Results
AbstractDespite their popularity as theoretical tools for illustrating the effects of nominal rigidities, some have questioned whether models based on staggered price contracts with rational expectations can match the persistence of the empirical inflation process. This article presents some general results about this class of models. It is shown that these models do not have a problem matching high autocorrelations for inflation. However, they fail to explain a key feature of reduced-form Phillips-curve regressions: The positive dependence of inflation on its own lags. It is shown that staggered price contracting models instead predict that the coefficients on these lag terms should be negative. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 48 (2007)
Issue (Month): 1 (02)
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Other versions of this item:
- Whelan, Karl, 2004. "Staggered Price Contracts and Inflation Persistence: Some General Results," Research Technical Papers 8/RT/04, Central Bank of Ireland.
- Whelan, Karl, 2004. "Staggered price contracts and inflation persistence: some general results," Working Paper Series 0417, European Central Bank.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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