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The Elusive Persistence: Wage and Price Rigidities, the Phillips Curve, and Inflation Dynamics

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  • Chris Tsoukis

    ()
    (London Metropolitan University)

  • George Kapetanios

    ()
    (Queen Mary, University of London)

  • Joseph Pearlman

    (London Metropolitan University)

Abstract

We review the main New Keynesian inflation equations that have arisen as a result of aggregation from individual firms' price rigidities. We find that, on the whole, they cannot account for inflation persistence, a key feature of the empirical dynamics of inflation, and with important policy implications. The only exception seems to be when price stickiness is combined with wage rigidity and staggering.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp619.pdf
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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 619.

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Date of creation: Oct 2007
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Handle: RePEc:qmw:qmwecw:wp619

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Keywords: Inflation rigidity; Price stickiness; Phillips curve;

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References

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  1. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2003. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Working Papers 2003-07, Department of Economics, Bar-Ilan University.
  2. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
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  4. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  5. Michael T. Kiley, 1996. "Endogenous price stickiness and business cycle persistence," Finance and Economics Discussion Series 96-23, Board of Governors of the Federal Reserve System (U.S.).
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  8. Liam Graham & Dennis J. Snower, 2007. "Hyperbolic Discounting and the Phillips Curve," Kiel Working Papers 1346, Kiel Institute for the World Economy.
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  13. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
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  26. repec:nbr:nberre:0126 is not listed on IDEAS
  27. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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  29. Tsoukis, Christopher, 2000. "Price Rigidities, Inflationary Finance and Long-Run Growth," Bulletin of Economic Research, Wiley Blackwell, vol. 52(1), pages 67-89, January.
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Cited by:
  1. Peter McAdam & Alpo Willman, 2012. "Technology, Utilization and Inflation: What Drives the New Keynesian Phillips Curve?," School of Economics Discussion Papers 0912, School of Economics, University of Surrey.
  2. Christopher Tsoukis & Frederic Tournemaine, 2011. "Social Conflict, Growth And Factor Shares," Metroeconomica, Wiley Blackwell, vol. 62(2), pages 283-304, 05.

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