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Endogenous Inflation - The Role of Expectations and Strategic Interaction


  • Seidel, Gerald

    () (Sonderforschungsbereich 504)


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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  • Seidel, Gerald, 2005. "Endogenous Inflation - The Role of Expectations and Strategic Interaction," Sonderforschungsbereich 504 Publications 05-14, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:05-14 Note: I would like to thank Björn Frank, Oliver Kirchkamp, and Daniel Schunk for helpful comments.

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    1. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December.
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    5. 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.
    6. John C. Driscoll & Steinar Holden, 2002. "Coordination, Fair Treatment and Inflation Persistence," NBER Working Papers 9174, National Bureau of Economic Research, Inc.
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    9. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
    10. 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.
    11. Vestin, David, 2000. "Price-level Targeting versus Inflation Targeting in a Forward-looking Model," Working Paper Series 106, Sveriges Riksbank (Central Bank of Sweden).
    12. John M. Roberts, 1998. "Inflation expectations and the transmission of monetary policy," Finance and Economics Discussion Series 1998-43, Board of Governors of the Federal Reserve System (U.S.).
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