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An Evolutionary Theory of Inflation Inertia

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  • Alexis Anagnostopoulos
  • Italo Bove
  • Karl Schlag
  • Omar Licandro

Abstract

We provide a simple theory of in.ation inertia in a staggered price setting framework a 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.

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File URL: http://documentos.fedea.net/pubs/dt/2006/dt-2006-25.pdf
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Bibliographic Info

Paper provided by FEDEA in its series Working Papers with number 2006-25.

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Date of creation: Nov 2006
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Handle: RePEc:fda:fdaddt:2006-25

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  1. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  2. Mirko Wiederholt & Bartosz Mackowiak, 2005. "Optimal Sticky Prices under Rational Inattention," 2005 Meeting Papers 369, Society for Economic Dynamics.
  3. 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.
  4. Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
  5. Gilles Saint-Paul, 2002. "Some Evolutionary Foundations for Price Level Rigidity," CESifo Working Paper Series 720, CESifo Group Munich.
  6. 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.
  7. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  8. Larry Samuelson, 2002. "Evolution and Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 47-66, Spring.
  9. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
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Cited by:
  1. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.

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