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Endogenous inflation : the role of expectations and strategic interaction

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  • Seidel, Gerald
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    Macroeconomic fluctuations always are the result of complex interactive processes. For this reason, our challenge of the widely used New Keynesian Phillips Curve builds on Taylor's (1979) version, which provides room for a richer sequential and interactive structure. We show that the Taylor model can be fruitfully complemented by the assumption of a ‘timeless’ optimizing central bank. The macroeconomic equilibrium exhibits a significant degree of inflation inertia which is an endogenous economic result and not merely the consequence of exogenous persistence in aggregate real activity. This result is in stark contrast to earlier work by Kiley (2002) who found the New Keynesian Phillips curve to show more persistent reactions than its Taylor (1979) companion when being exposed to an exogenous monetary shocks.

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    File URL: https://ub-madoc.bib.uni-mannheim.de/2662/1/dp05_14.pdf
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    Paper provided by Sonderforschungsbreich 504 in its series Papers with number 05-14.

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    Date of creation: 2005
    Handle: RePEc:mnh:spaper:2662
    Contact details of provider: Postal:
    D-68131 Mannheim

    Phone: (49) (0) 621-292-2547
    Fax: (49) (0) 621-292-5594
    Web page: https://ub-madoc.bib.uni-mannheim.de/view/ubmaseries/90080.html
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    1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    2. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages 45-61, May.
    3. Currie,David & Levine,Paul, 2009. "Rules, Reputation and Macroeconomic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521104609, March.
    4. Gunter Coenen & Volker Wieland, 2000. "A Simple Estimated Euro Area Model With Rational Expectations And Nominal Rigidities," Computing in Economics and Finance 2000 187, Society for Computational Economics.
    5. Steinar Holden & John C. Driscoll, 2003. "Inflation Persistence and Relative Contracting," American Economic Review, American Economic Association, vol. 93(4), pages 1369-1372, September.
    6. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
    7. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, January.
    8. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
    9. Kiley, Michael T, 2002. "Partial Adjustment and Staggered Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 283-298, May.
    10. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
    11. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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