Intrinsic and Inherited Inflation Persistence

Jeffrey C. Fuhrer ()

MPRA Paper from University Library of Munich, Germany

Abstract: In the conventional view of inflation, the New Keynesian Phillips curve (NKPC) captures most of the persistence in inflation. The sources of persistence are twofold. First, the "driving process" for inflation is quite persistent, and the NKPC implies that inflation must "inherit" this persistence. Second, backward-looking or indexing behavior imparts some "intrinsic" persistence to inflation. This paper shows that, in practice, inflation in the NKPC inherits very little of the persistence of the driving process, and it is intrinsic persistence that constitutes the dominant source of persistence. The reasons are that, first, the coefficient on the driving process is small, and, second, the shock that disturbs the NKPC is large.

JEL-codes: G00 G0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2006-06-19
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Published in International Journal of Central Banking Number 3.Volume 2(2006): pp. 49-86

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http://mpra.ub.uni-muenchen.de/805/

Related works:
Working Paper: Intrinsic and inherited inflation persistence (2005)
Journal Article: Intrinsic and Inherited Inflation Persistence (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:805

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