Arbeitspapier

Inflation persistence revisited

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.

Sprache
Englisch

Erschienen in
Series: Working Paper ; No. 518

Klassifikation
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
Thema
Inflation persistence
Wage-price staggering
New Keynesian Phillips curve
Nominal inertia
Monetary policy
Forward-looking expectations
Inflation
Ungleichgewichtstheorie
Phillips-Kurve
Theorie

Ereignis
Geistige Schöpfung
(wer)
Karanassou, Marika
Snower, Dennis J.
Ereignis
Veröffentlichung
(wer)
Queen Mary University of London, Department of Economics
(wo)
London
(wann)
2004

Handle
Letzte Aktualisierung
20.09.2024, 08:24 MESZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Karanassou, Marika
  • Snower, Dennis J.
  • Queen Mary University of London, Department of Economics

Entstanden

  • 2004

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