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Modeling Inflation Dynamics: A Critical Review of Recent Research

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  • JEREMY RUDD
  • KARL WHELAN

Abstract

In recent years, a broad academic consensus has arisen that favors using rational expectations sticky-price models to capture inflation dynamics. We review the principal conclusions of this literature concerning: (1) the ability of these models to fit the data; (2) the importance of rational forward-looking expectations in price setting; and (3) the appropriate measure of inflationary pressures. We argue that existing models fail to provide a useful empirical description of the inflation process. Copyright 2007 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2007.00019.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 39 (2007)
Issue (Month): s1 (02)
Pages: 155-170

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Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:s1:p:155-170

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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