Non-constant Hazard Function and Inflation Dynamics
No SFB649DP2009-030, SFB 649 Discussion Papers from Humboldt University, Collaborative Research Center 649
This paper explores implications of nominal rigidity characterized by a non-constant hazard function for aggregate dynamics. I derive the NKPC under an arbitrary hazard function and parameterize it with the Weibull duration model. The resulting Phillips curve involves lagged inflation and lagged expectations. It nests the Calvo NKPC as a limiting case in the sense that the effects of both terms are canceled out under the constant-hazard assumption. Furthermore, I find lagged inflation always has negative coefficients, thereby making it impossible to interpret inflation persistence as intrinsic. The numerical evaluation shows that the increasing hazard function leads to hump-shaped impulse responses of ination to monetary shocks, and output leads inflation.
Keywords: Hazard function; Weibull distribution; New Keynesian Phillips Curve (search for similar items in EconPapers)
JEL-codes: E12 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: http://EconPapers.repec.org/RePEc:hum:wpaper:sfb649dp2009-030
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