Intrinsic Inflation Persistence
AbstractIt is often argued that the New Keynesian Phillips curve is at odds with the data because it cannot explain inflation persistence — the difficulty of returning inflation immediately to target after a shock without any loss of output. This paper explains how a model where newer prices are stickier than older prices is consistent with this phenomenon, even though it introduces no deviation from optimizing, forwards-looking price setting. The probability of adjusting new and old prices is estimated using a novel method that draws only on macroeconomic data, and the findings strongly support the premise of the model.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0837.
Date of creation: Nov 2007
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
inflation persistence; hazard function; time-dependent pricing; New Keynesian Phillips curve;
Other versions of this item:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-15 (All new papers)
- NEP-CBA-2007-12-15 (Central Banking)
- NEP-MAC-2007-12-15 (Macroeconomics)
- NEP-MON-2007-12-15 (Monetary Economics)
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