An Evolutionary Theory of Inflation Inertia

Alexis Anagnostopoulos, Omar Licandro (), Italo Bove and Karl Schlag

Journal of the European Economic Association, 2007, vol. 5, issue 2-3, 433-443

Abstract: We provide a simple theory of inflation inertia in a staggered price setting framework à la Calvo (1983). Contrary to Calvo's formulation, the frequency of price changes is allowed to vary according to an evolutionary criterion. Inertia is the direct result of gradual adjustment in this frequency following a permanent change in the rate of money growth. (JEL: E31) (c) 2007 by the European Economic Association.

Date: 2007
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