Inflation persistence when price stickiness differs between industries

Kevin Sheedy

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: There is much evidence that price-adjustment frequencies vary widely across industries. This paper shows that inflation persistence is lower with heterogeneity in price stickiness than without it, taking as given the degree of persistence in variables affecting inflation. Differences in the frequency of price adjustment mean that the pool of firms which responds to any macroeconomic shock is unrepresentative, containing a disproportionately large number of firms from industries with more flexible prices. Consequently, this group of firms is more likely to reverse any initial price change after a shock has dissipated, making inflation persistence much harder to explain.

Keywords: Inflation persistence; heterogeneity; price stickiness; New Keynesian Phillips Curve (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2007-11
References: View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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http://eprints.lse.ac.uk/3738/ Open access version. (application/pdf)

Related works:
Working Paper: Inflation Persistence When Price Stickiness Differs Between Industries (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:3738

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