Sheedy, Kevin D. (2007) Intrinsic inflation persistence. 837. Centre for Economic Performance, London School of Economics and Political Science, London, UK.
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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)|
|Additional Information:||© 2007 K. D. Sheedy|
|Uncontrolled Keywords:||inflation persistence, hazard function, time-dependent pricing, New Keynesian Phillips curve|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory|
|Journal of Economic Literature Classification System:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles|
|Sets:||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
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