Inflation persistence and flexible prices

Robert Dittmar, William Thomas Gavin () and Finn E. Kydland

No 2001-010, Working Papers from Federal Reserve Bank of St. Louis

Abstract: If the central bank follows an interest rate rule, then inflation is likely to be persistence, even when prices are fully flexible. Any shock, whether persistent or not, may lead to inflation persistence. In equilibrium, the dynamics of inflation are determined by the evolution of the spread between the real interest rate and the central bank’s target. Inflation persistence in U.S. data can be characterized by a vector autocorrelation function relating inflation and deviations of output from trend. This paper shows that a flexible-price general equilibrium business cycle model with money and a central bank using an interest rate target can account for such inflation persistence.

Keywords: Inflation (Finance); Econometric models; Taylor's rule (search for similar items in EconPapers)
Date: 2004
View list of references

Published in International Economic Review, February 2005, 46(1), pp. 245-61

Downloads: (external link)
http://research.stlouisfed.org/wp/2001/2001-010.pdf (application/pdf)

Related works:
Working Paper: Inflation Persistence and Flexible Prices (2002)
Journal Article: INFLATION PERSISTENCE AND FLEXIBLE PRICES (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: http://EconPapers.repec.org/RePEc:fip:fedlwp:2001-010

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().