Intrinsic inflation persistence

Sheedy, Kevin D. ORCID: 0000-0002-0247-6323 (2007) Intrinsic inflation persistence. . London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

It is often argued that the New Keynesian Phillips curve is at odds with the data because it cannot explain inflation persistence — the difficulty of returning inflation immediately to target after a shock without any loss of output. This paper explains how a model where newer prices are stickier than older prices is consistent with this phenomenon, even though it introduces no deviation from optimizing, forwards-looking price setting. The probability of adjusting new and old prices is estimated using a novel method that draws only on macroeconomic data, and the findings strongly support the premise of the model.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/
Additional Information:	© 2007 K. D. Sheedy
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
Date Deposited:	06 Mar 2008 08:56
Last Modified:	11 Dec 2024 18:50
URI:	http://eprints.lse.ac.uk/id/eprint/3739

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