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Can We Explain Inflation Persistence in a Way that Is Consistent with the Microevidence on Nominal Rigidity?

Listed author(s):
  • HUW DIXON
  • ENGIN KARA

This paper adopts the impulse-response methodology to understand inflation persistence. It has often been argued that existing models of pricing fail to explain the persistence that we observe. We adopt a common general framework that allows for an explicit modeling of the distribution of contract lengths and for different types of price setting. We also evaluate how far the theories are consistent with recent evidence on price and wage rigidity. We find that allowing for a distribution of durations can take us a long way to solving the puzzle of inflation persistence, but not all the way yet. Copyright (c) 2010 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2009.00282.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 42 (2010)
Issue (Month): 1 (02)
Pages: 151-170

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Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:1:p:151-170
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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