Intrinsic inflation persistence

Kevin Sheedy

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

Abstract: It is often argued that the New Keynesian Phillips curve is at odds with the data because it cannot explain inflation persistence — the difficulty of returning inflation immediately to target after a shock without any loss of output. This paper explains how a model where newer prices are stickier than older prices is consistent with this phenomenon, even though it introduces no deviation from optimizing, forwards-looking price setting. The probability of adjusting new and old prices is estimated using a novel method that draws only on macroeconomic data, and the findings strongly support the premise of the model.

Keywords: inflation persistence; hazard function; time-dependent pricing; New Keynesian Phillips curve (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2007-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://eprints.lse.ac.uk/3739/ Open access version. (application/pdf)

Related works:
Journal Article: Intrinsic inflation persistence (2010)
Working Paper: Intrinsic Inflation Persistence (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:3739

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