Endogenous Price Stickiness and Business Cycle Persistence
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.
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Volume (Year): 32 (2000)
Issue (Month): 1 (February)
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