Inflation persistence revisited

Arbeitspapier

It is commonly asserted that inflation is a jump variable in the New Keynesian Phillips curve, and thus wage-price inertia does not imply inflation inertia. We show that this "inflation flexibility proposition" is highly misleading, relying on the assumption that real variables are exogenous. In a general equilibrium setting (in which real variables not only affect inflation, but are also influenced by it) the phenomenon of inflation inertia re-emerges. Under plausible parameter values, high degrees of inflation persistence (prolonged after-effects of inflation in response to temporary money growth shocks) and under-responsiveness (prolonged effects in response to permanent shocks) can arise in the context of standard wage-price staggering models.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 518

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Business Fluctuations; Cycles
• Subject: Inflation persistence ; Wage-price staggering ; New Keynesian Phillips curve ; Nominal inertia ; Monetary policy ; Forward-looking expectations ; Inflation ; Ungleichgewichtstheorie ; Phillips-Kurve ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Karanassou, Marika ; Snower, Dennis J.
• Event: Veröffentlichung
• (who): Queen Mary University of London, Department of Economics
• (where): London
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/3308
• Last update: 10.03.2025, 11:42 AM CET