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Inflation Persistence

Listed author(s):
  • Jeff Fuhrer
  • George Moore
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    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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    File URL: http://hdl.handle.net/10.2307/2118513
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    Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

    Volume (Year): 110 (1995)
    Issue (Month): 1 ()
    Pages: 127-159

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    Handle: RePEc:oup:qjecon:v:110:y:1995:i:1:p:127-159.
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