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The Elusive Persistence: Wage and Price Rigidities, the Phillips Curve, and Inflation Dynamics

  • Chris Tsoukis

    ()

    (London Metropolitan University)

  • George Kapetanios

    ()

    (Queen Mary, University of London)

  • Joseph Pearlman

    (London Metropolitan University)

We review the main New Keynesian inflation equations that have arisen as a result of aggregation from individual firms' price rigidities. We find that, on the whole, they cannot account for inflation persistence, a key feature of the empirical dynamics of inflation, and with important policy implications. The only exception seems to be when price stickiness is combined with wage rigidity and staggering.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp619.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 619.

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Date of creation: Oct 2007
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Handle: RePEc:qmw:qmwecw:wp619
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  15. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
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  18. Ignazio Angeloni & Luc Aucremanne & Michael Ehrmann & Jordi Galí & Andrew Levin & Frank Smets, 2006. "New Evidence on Inflation Persistence and Price Stickiness in the Euro Area: Implications for Macro Modeling," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 562-574, 04-05.
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  26. Julio J. Rotemberg, 1994. "Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model," NBER Working Papers 4948, National Bureau of Economic Research, Inc.
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