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An Evolutionary Theory of Inflation Inertia

  • Alexis Anagnostopoulos
  • Omar Licandro
  • Italo Bove
  • Karl Schlag

We provide a simple theory of inflation inertia in a staggered price setting framework a la Calvo (1983). Contrary to Calvo's formulation, the frequency of price changes is allowed to vary according to an evolutionary criterion. Inertia is the direct result of gradual adjustment in this frequency following a permanent change in the rate of money growth.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2006/33.

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Date of creation: 2006
Date of revision:
Handle: RePEc:eui:euiwps:eco2006/33
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  1. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  2. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
  3. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.
  4. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  5. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  6. Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
  7. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
  8. Gilles Saint-Paul, 2002. "Some Evolutionary Foundations for Price Level Rigidity," CESifo Working Paper Series 720, CESifo Group Munich.
  9. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  10. Larry Samuelson, 2002. "Evolution and Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 47-66, Spring.
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