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Price rigidities, inventories, and growth fluctuations

  • Chris Tsoukis

    (London Metropolitan University, London, UK)

  • Naveed Naqvi

We investigate the interactions of price rigidities and storability of goods, and their implications for inflation and growth. The model is an optimising, stochastic general equilibrium one, featuring endogenous growth, the possibility of (short run) excess demand and inflation derived from sluggish and staggered price setting (a version of the 'New Keynesian Phillips Curve'). Analytical short-run dynamics are derived. A notable feature is the predicted short-run comovements between growth and inflation (negative) and between the inventory ratio and growth (positive). Increased price flexibility reduces the persistence of the system but its overall influence on variances is uncertain. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1325
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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 28 (2007)
Issue (Month): 6 ()
Pages: 619-631

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Handle: RePEc:wly:mgtdec:v:28:y:2007:i:6:p:619-631
DOI: 10.1002/mde.1325
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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