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Intrinsic inflation persistence

Sheedy, Kevin D. (2010) Intrinsic inflation persistence. Journal of Monetary Economics, 57 (8). pp. 1049-1061. ISSN 0304-3932

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Identification Number: 10.1016/j.jmoneco.2010.10.002

Abstract

Empirical evidence suggests that inflation determination is not purely forward-looking, but models of price setting have struggled to rationalize this finding without directly assuming backward-looking pricing rules for firms. This paper shows that intrinsic inflation persistence can be explained with no deviation from optimizing, forward-looking behaviour if prices that have remained fixed for longer are more likely to be changed than those set recently. A relationship between the probability of price adjustment and the duration of a price spell is shown to imply a simple “hybrid” Phillips curve including lagged and expected inflation, which is estimated using macroeconomic data.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/03043...
Additional Information: © 2010 Elsevier
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 13 Apr 2011 15:47
Last Modified: 20 May 2020 02:13
URI: http://eprints.lse.ac.uk/id/eprint/35150

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