Intrinsic Inflation Persistence

Kevin Daniel Sheedy ()

CEP Discussion Papers from Centre for Economic Performance, LSE

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.

Keywords: inflation persistence; hazard function; time-dependent pricing; New Keynesian Phillips curve (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-11
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Related works:
Journal Article: Intrinsic inflation persistence (2010)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0837

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