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Modeling inflation dynamics : a critical review of recent research

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  • Jeremy Rudd
  • Karl Whelan

Abstract

In recent years, a broad academic consensus has arisen that favors using rational expectations sticky-price models to capture inflation dynamics. We review the principal conclusions of this literature concerning: (1) the ability of these models to fit the data; (2) the importance of rational forward-looking expectations in price setting; and (3) the appropriate measure of inflationary pressures. We argue that existing models fail to provide a useful empirical description of the inflation process.

Suggested Citation

  • Jeremy Rudd & Karl Whelan, 2007. "Modeling inflation dynamics : a critical review of recent research," Open Access publications 10197/201, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:oapubs:10197/201
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    File URL: http://hdl.handle.net/10197/201
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    More about this item

    Keywords

    Phillips curve; Sticky prices; Rational expectations; Inflation (Finance)--Mathematical models; Rational expectations (Economic theory);
    All these keywords.

    JEL classification:

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

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