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Persistent Issues in Inflation Persistence

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Author Info

  • Guerrieri, Luca

    ()
    (Board of Governors of the Federal Reserve System)

Abstract

One of the criticisms routinely advanced against models of the business cycle with staggered contracts is their inability to generate inflation persistence. This paper finds that staggered contracts µa la Taylor are, in fact, capable of reproducing the inflation persistence implied by U.S. data. Following Fuhrer and Moore, I capture the moments that the contract speci¯cation needs to replicate by using the correlograms from a small vector autoregression (VAR), that includes in°ation among the endogenous variables. A simple structural model substitutes the in°ation equation from the VAR with the contract specification. I estimate the contract parameters in the structural model by maximum likelihood. The correlogram for the endogenous variables from the estimated structural model, including that for in°ation, are very close to the correlograms from the VAR (and are contained within their 90% confidence intervals)

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File URL: http://www.usc.es/economet/cycles/cycles53.pdf
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Bibliographic Info

Article provided by International Association of Economic Cycles in its journal Review on Economic Cycles.

Volume (Year): 5 (2002)
Issue (Month): 1 (December)
Pages:

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Handle: RePEc:rec:cycles:v:5:y:2002:i:1_3

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Web page: http://www.usc.es/economet/cycles.htm

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Cited by:
  1. Vítor Gaspar & Andrew Levin & Fernando Martins & Frank Smets, 2009. "Evidence from surveys of price-setting managers: Policy lessons and directions for ongoing research," Working Papers w200927, Banco de Portugal, Economics and Research Department.

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