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Can we explain inflation persistence in a way that is consistent with the micro-evidence on nominal rigidity?

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Author Info
Dixon, Huw () (Cardiff Business School)
Kara, Engin

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Abstract

This paper adopts the Impulse-Response methodology to understand inflation persistence. It has often been argued that existing models of pricing fail to explain the persistence that we observe. We adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting. We also evaluate how far the theories are consistent with recent evidence on price and wage rigidity. We find that allowing for a distribution of durations can take us a long way to solving the puzzle of inflation persistence, but not all the way yet.

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Publisher Info
Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2008/22.

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Length: 27 pages
Date of creation: Sep 2008
Date of revision:
Publication status: Forthcoming in Journal of Money, Credit and Banking
Handle: RePEc:cdf:wpaper:2008/22

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Related research
Keywords: DSGE models; inflation; persistence; price-setting;

Find related papers by JEL classification:
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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