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 Taylor-style staggered contracts can match the persistence of the empirical inflation process. This paper presents some general theoretical results about the Taylor-style 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.
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Bibliographic InfoPaper provided by Central Bank of Ireland in its series Research Technical Papers with number 8/RT/04.
Length: 38 pages
Date of creation: Oct 2004
Date of revision:
Other versions of this item:
- Karl Whelan, 2007. "Staggered Price Contracts And Inflation Persistence: Some General Results," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 111-145, 02.
- 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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