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An Evolutionary Theory of Inflation Inertia

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  • Alexis Anagnostopoulos
  • Omar Licandro
  • Italo Bove
  • Karl Schlag

Abstract

We provide a simple theory of inflation inertia in a staggered price setting framework à la Calvo (1983). Contrary to Calvo's formulation, the frequency of price changes is allowed to vary according to an evolutionary criterion. Inertia is the direct result of gradual adjustment in this frequency following a permanent change in the rate of money growth. (JEL: E31) (c) 2007 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 5 (2007)
Issue (Month): 2-3 (04-05)
Pages: 433-443

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Handle: RePEc:tpr:jeurec:v:5:y:2007:i:2-3:p:433-443

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References

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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  2. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
  3. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  4. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February.
  5. Saint-Paul, Gilles, 2002. "Some Evolutionary Foundations for Price Level Rigidity," CEPR Discussion Papers 3150, C.E.P.R. Discussion Papers.
  6. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  7. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
  8. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  9. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
  10. Larry Samuelson, 2002. "Evolution and Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 47-66, Spring.
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Citations

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Cited by:
  1. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo, vol. 56(4), pages 465-497, December.
  2. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  3. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Working Paper Series 3020, CESifo Group Munich.
  4. Paul Grauwe, 2010. "The scientific foundation of dynamic stochastic general equilibrium (DSGE) models," Public Choice, Springer, vol. 144(3), pages 413-443, September.
  5. Paul De Grauwe, 2012. "Lectures on Behavioral Macroeconomics," Economics Books, Princeton University Press, edition 1, volume 1, number 9891.
  6. De Grauwe, Paul, 2008. "DSGE-Modelling: when agents are imperfectly informed," Working Paper Series 0897, European Central Bank.
  7. Paul Grauwe, 2011. "Animal spirits and monetary policy," Economic Theory, Springer, vol. 47(2), pages 423-457, June.
  8. Paul De Grauwe, 2008. "Animal Spirits and Monetary Policy," CESifo Working Paper Series 2418, CESifo Group Munich.
  9. Paul De Grauwe, 2008. "Macroeconomic Modeling when Agents are Imperfectly Informed," CESifo Working Paper Series 2318, CESifo Group Munich.
  10. LOENING, Josef & TAKADA, Hideki, 2008. "Inflationary Expectations In Ethiopia: Some Preliminary Results," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 159-176.

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