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 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. JEL Classification: E31
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Date of creation: Nov 2004
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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," Research Technical Papers 8/RT/04, Central Bank of Ireland.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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