The lead of output over inflation in sticky price models

Michael Kiley

Economics Bulletin, 2002, vol. 5, issue 5, 1-7

Abstract: Output growth is negatively correlated with inflation, detrended output is positively correlated with inflation, and output growth and detrended output lead inflation. I explore the consistency of these correlations with three models of price adjustment: the partial adjustment model, a staggered price setting model, and the P-bar model. The ratio of the variance of supply to demand shocks necessary to match the pattern of output-inflation correlations can be ranked across the three models the P-Bar model requires the lowest ratio, and the partial adjustment model requires the highest ratio. The imperfect information aspects of staggered price setting and the P-bar model drive some of the output/inflation nexus, highlighting a link with the tradition from Hume to Lucas to recent work by Mankiw and Reis.

JEL-codes: E0 E3 (search for similar items in EconPapers)
Date: 2002-08-28
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Lead of Output over Inflation in Sticky Price Models (2019)
Working Paper: The lead of output over inflation in sticky price models (1996)
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