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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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  1. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  2. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank.
  3. 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.
  4. Gilles Saint-Paul, 2005. "Some Evolutionary Foundations for Price Level Rigidity," American Economic Review, American Economic Association, vol. 95(3), pages 765-779, June.
  5. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  7. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  8. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  9. Larry Samuelson, 2002. "Evolution and Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 47-66, Spring.
  10. 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.
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Citations

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Cited by:
  1. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Working Paper Series 3020, CESifo Group Munich.
  2. De Grauwe, Paul, 2008. "DSGE-Modelling: when agents are imperfectly informed," Working Paper Series 0897, European Central Bank.
  3. 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.
  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 Grauwe, 2011. "Animal spirits and monetary policy," Economic Theory, Springer, vol. 47(2), pages 423-457, June.
  6. 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.
  7. Paul De Grauwe, 2008. "Macroeconomic Modeling when Agents are Imperfectly Informed," CESifo Working Paper Series 2318, CESifo Group Munich.
  8. Paul De Grauwe, 2012. "Lectures on Behavioral Macroeconomics," Economics Books, Princeton University Press, edition 1, volume 1, number 9891.
  9. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo, vol. 56(4), pages 465-497, December.
  10. Paul De Grauwe, 2008. "Animal Spirits and Monetary Policy," CESifo Working Paper Series 2418, CESifo Group Munich.

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