 INFLATION REGIMES AND PRICE-SETTING INTERACTIONSInternational Journal of Theoretical and Applied Finance (IJTAF), 2005, vol. 08, issue 03, 339-355 Abstract: A large body of empirical work is clear-cut in suggesting that the international post-war inflation experience may be described in terms of switches among multiple regimes. A definite explanation of this stylized fact, however, is still under debate. In this paper, we model an economy composed of a large number of interacting price-setting firms which can replicate the evidence at hand. Interactions emerge as a by-product of consumers' uncertainty on the prices charged by different firms. The underlying Markovian structure possesses a stationary distribution with multiple modes, so that its associated dynamics is characterized by multiple regimes and sudden transitions among them. In particular, for any (almost-fully accommodating) monetary policy reaction function, the existence of a multiplicity of inflation regimes is associated to the information acquisition technology consumers have in searching for the lowest price. Keywords: Inflation; regime switching; interactions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:08:y:2005:i:03:n:s0219024905003001 Ordering information: This journal article can be ordered from DOI: 10.1142/S0219024905003001 Access Statistics for this article International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd. |
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