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Inflation persistence

Author

Listed:
  • Jeffrey C. Fuhrer
  • George R. Moore

Abstract

This paper demonstrates that the behavior of the conventional Phelps-Taylor model of overlapping wage contracts stands in stark contrast with important features of U. S. macro data for inflation and output. In particular, the Phelps-Taylor specification implies far too little inflation persistence. We present a new contracting model, in which agents are concerned with relative real wages, that is data-consistent. In a specification that nests both models, we resoundingly reject the conventional contracting model, but cannot reject the new contracting model.
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Suggested Citation

  • Jeffrey C. Fuhrer & George R. Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgpr:y:1993:n:1pt.2:x:2
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    File URL: http://fraser.stlouisfed.org/historicaldocs/op/download/41113/Conf%20Proceed_199303_partII_session%20V.pdf
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    References listed on IDEAS

    as
    1. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    2. Edmund Phelps, 1978. "Disinflation without recession: Adaptive guideposts and monetary policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 783-809, December.
    3. Buiter, Willem H & Jewitt, Ian, 1981. "Staggered Wage Setting with Real Wage Relativities: Variations on a Theme of Taylor," The Manchester School of Economic & Social Studies, University of Manchester, vol. 49(3), pages 211-228, September.
    4. Anderson, Gary & Moore, George, 1985. "A linear algebraic procedure for solving linear perfect foresight models," Economics Letters, Elsevier, vol. 17(3), pages 247-252.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Inflation (Finance);

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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