Intrinsic inflation persistence

Kevin Sheedy

Journal of Monetary Economics, 2010, vol. 57, issue 8, 1049-1061

Abstract: Empirical evidence suggests that inflation determination is not purely forward-looking, but models of price setting have struggled to rationalize this finding without directly assuming backward-looking pricing rules for firms. This paper shows that intrinsic inflation persistence can be explained with no deviation from optimizing, forward-looking behaviour if prices that have remained fixed for longer are more likely to be changed than those set recently. A relationship between the probability of price adjustment and the duration of a price spell is shown to imply a simple "hybrid" Phillips curve including lagged and expected inflation, which is estimated using macroeconomic data.

Date: 2010
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Related works:
Working Paper: Intrinsic Inflation Persistence (2007)
Working Paper: Intrinsic inflation persistence (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:57:y:2010:i:8:p:1049-1061

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