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Price Stickiness, Inflation, and Output Dynamics: A Cross-Country Analysis

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  • Hashmat Khan

Abstract

The sticky-price model of aggregate fluctuations implies that countries with high trend inflation rates should exhibit less-persistent output fluctuations than countries with low trend inflation. I conduct a cross-country analysis of output persistence and inflation that takes into account the within-country time variation in trend inflation. My results do not support the implication. The results suggest that further research is needed before models based on nominal price stickiness can offer a complete microfoundation for persistent effects of aggregate demand shocks.

Suggested Citation

  • Hashmat Khan, 2000. "Price Stickiness, Inflation, and Output Dynamics: A Cross-Country Analysis," Staff Working Papers 00-13, Bank of Canada.
    • Handle: RePEc:bca:bocawp:00-13
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    References listed on IDEAS

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    6. David K. Backus & Stanley E. Zin, 1993. "Long-memory inflation uncertainty: evidence from the term structure of interest rates," Proceedings, Federal Reserve Bank of Cleveland, pages 681-708.
    7. Diebold, Francis X. & Rudebusch, Glenn D., 1989. "Long memory and persistence in aggregate output," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 189-209, September.
    8. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    9. Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb..
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    Cited by:

    1. Hasan Bakhshi & Pablo Burriel-Llombart & Hashmat Khan & Barbara Rudolf, 2003. "Endogenous price stickiness, trend inflation, and the New Keynesian Phillips curve," Bank of England working papers 191, Bank of England.

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    More about this item

    Keywords

    Business fluctuations and cycles;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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