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Endogenous Price Stickiness and Business Cycle Persistence

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  • Kiley, Michael T

Abstract

Sticky prices help generate persistent output fluctuations in response to aggregate demand shocks. This paper develops a model in which price stickiness is endogenous and generates persistent output fluctuations. Since the degree of price stickiness should be lower in high-inflation economies, output persistence should also be lower in high-inflation economies. Estimation of the model, as well as simple autocorrelations of detrended real output, suggest that, indeed, output fluctuations about trend are less persistent in high-inflation economies.

Suggested Citation

  • Kiley, Michael T, 2000. "Endogenous Price Stickiness and Business Cycle Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 28-53, February.
  • Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:1:p:28-53
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