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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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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. 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.
  2. Gilles Saint-Paul, 2005. "Some Evolutionary Foundations for Price Level Rigidity," American Economic Review, American Economic Association, vol. 95(3), pages 765-779, June.
  3. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank.
  4. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  5. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Finance and Economics Discussion Series 93-17, Board of Governors of the Federal Reserve System (U.S.).
  6. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  7. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  8. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
  9. 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.
  10. Larry Samuelson, 2002. "Evolution and Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 47-66, Spring.
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Cited by:
  1. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  2. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Working Paper Series 3020, CESifo Group Munich.
  3. LOENING, Josef & TAKADA, Hideki, 2008. "Inflationary Expectations In Ethiopia: Some Preliminary Results," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 159-176.
  4. Paul De Grauwe, 2012. "Lectures on Behavioral Macroeconomics," Economics Books, Princeton University Press, edition 1, volume 1, number 9891.
  5. Paul De Grauwe, 2008. "Macroeconomic Modeling when Agents are Imperfectly Informed," CESifo Working Paper Series 2318, CESifo Group Munich.
  6. Paul De Grauwe, 2010. "Top-Down versus Bottom-Up Macroeconomics," CESifo Economic Studies, CESifo, vol. 56(4), pages 465-497, December.
  7. De Grauwe, Paul, 2008. "DSGE-Modelling: when agents are imperfectly informed," Working Paper Series 0897, European Central Bank.
  8. Paul De Grauwe, 2008. "Animal Spirits and Monetary Policy," CESifo Working Paper Series 2418, CESifo Group Munich.
  9. Paul Grauwe, 2011. "Animal spirits and monetary policy," Economic Theory, Springer, vol. 47(2), pages 423-457, June.
  10. Paul Grauwe, 2010. "The scientific foundation of dynamic stochastic general equilibrium (DSGE) models," Public Choice, Springer, vol. 144(3), pages 413-443, September.

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