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When Inflation Persistence Really Matters: Two examples

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  • Tatiana Kirsanova
  • David Vines
  • Simon Wren-Lewis

Abstract

In this paper we present two examples where the presence of inflation persistence could influence the qualitative nature of monetary policy. In the first case the desirability of a monetary policy regime comes under question when extensive inflation persistence exists. In the second case the direction in which interest rates move following a cost push shock changes when inflation persistence becomes important. In both cases, inflation persistence is central to the process influencing policy.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1351.

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Length: 23 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:kie:kieliw:1351

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Keywords: Inflation Persistence; Macroeconomic Stabilisation;

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References

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  1. Amato, Jeffery D. & Laubach, Thomas, 2003. "Rule-of-thumb behaviour and monetary policy," European Economic Review, Elsevier, Elsevier, vol. 47(5), pages 791-831, October.
  2. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  3. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Optimal fiscal and monetary policy under sticky prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 114(2), pages 198-230, February.
  4. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers, C.V. Starr Center for Applied Economics, New York University 99-13, C.V. Starr Center for Applied Economics, New York University.
  5. Campbell Leith & Simon Wren‐Lewis, 2013. "Fiscal Sustainability in a New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 45(8), pages 1477-1516, December.
  6. Pierpaolo Benigno & J. David López-Salido, 2002. "Inflation persistence and optimal monetary policy in the Euro Area," Banco de Espa�a Working Papers 0215, Banco de Espa�a.
  7. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5584, C.E.P.R. Discussion Papers.
  8. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 341, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Beetsma, Roel & Jensen, Henrik, 2002. "Monetary and Fiscal Policy Interactions in a Micro-Funded Model of a Monetary Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3591, C.E.P.R. Discussion Papers.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  11. Stehn, Sven Jari & Vines, David, 2008. "Debt Stabilisation Bias and the Taylor Principle: Optimal Policy in a New Keynesian Model with Government Debt and Inflation Persistence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6696, C.E.P.R. Discussion Papers.
  12. Tatiana Kirsanova & Mathan Satchi & David Vines & Simon Wren-Lewis, 2007. "Optimal Fiscal Policy Rules in a Monetary Union," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(7), pages 1759-1784, October.
  13. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  14. Tatiana Kirsanova & Simon Wren-Lewis, 2006. " Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities," CDMA Conference Paper Series, Centre for Dynamic Macroeconomic Analysis 0609, Centre for Dynamic Macroeconomic Analysis.
  15. Jón Steinsson, 2000. "Optimal monetary policy in an economy with inflation persistence," Economics, Department of Economics, Central bank of Iceland wp11, Department of Economics, Central bank of Iceland.
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