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Staggered Price Contracts and Inflation Persistence: Some General Results

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  • Whelan, Karl

    (Central Bank and Financial Services Authority of Ireland)

Abstract

Despite their popularity as theoretical tools for illustrating the effects of nominal rigidities, some have questioned whether models based on Taylor-style staggered contracts can match the persistence of the empirical inflation process. This paper presents some general theoretical results about the Taylor-style models. It is shown that these models do not have a problem matching high autocorrelations for inflation. However, they fail to explain a key feature of reduced-form Phillips-curve regressions: The positive dependence of inflation on its own lags. It is shown that staggered price contracting models instead predict that the coefficients on these lag terms should be negative.

Suggested Citation

  • Whelan, Karl, 2004. "Staggered Price Contracts and Inflation Persistence: Some General Results," Research Technical Papers 8/RT/04, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:8/rt/04
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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