Modelling Inflation Dynamics: A Critical Review of Recent Research

Jeremy Rudd and Karl Whelan ()
Additional contact information
Jeremy Rudd: Federal Reserve Board

No 7/RT/05, Research Technical Papers from Central Bank of Ireland

Abstract: In recent years, a broad academic consensus has arisen around the use of rational expectations sticky-price models to capture inflation dynamics. These models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen; and, moreover, are perceived to be robust to the Lucas critique in a way that earlier econometric models of inflation are not. We review the principal conclusions of this literature concerning: 1) the ability of these models to fit the data; 2) the importance of rational forward-looking expectations in price setting; and 3) the appropriate measure of inflationary pressures. We argue that existing rational expectations sticky-price models fail to provide a useful empirical description of the inflation process, especially relative to traditional econometric Phillips curves of the sort commonly employed for policy analysis.

Pages: 53 pages
Date: 2005-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

Downloads: (external link)
https://centralbank.ie/docs/default-source/publica ... whelan).pdf?sfvrsn=4 (application/pdf)

Related works:
Journal Article: Modeling Inflation Dynamics: A Critical Review of Recent Research (2007)
Journal Article: Modeling Inflation Dynamics: A Critical Review of Recent Research (2007)
Working Paper: Modeling inflation dynamics: a critical review of recent research (2007)
Working Paper: Modelling inflation dynamics: a critical review of recent research (2005)
Working Paper: Modelling inflation dynamics: a critical review of recent research (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:7/rt/05

Access Statistics for this paper

More papers in Research Technical Papers from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().