The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes: Comment
The purpose of this comment is to demonstrate that their theoretical result concerning the first order derivative of relative inflation persistence with respect to the degree of accommodation is incorrect. As a consequence, the sign of the first derivative becomes ambiguous. We provide an economic explanation of this result, elaborating on the three distinct transmission mechanisms in the AS (relative) model. Moreover, we propose an economically meaningful modification of the original AS model that restores a strictly positive relation between exchange rate accommodation and relative inflation persistence.
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Volume (Year): 90 (2000)
Issue (Month): 1 (March)
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