Measured Inflation and the New-Keynesian Model

Lawrence Christiano, Martin Eichenbaum and Benjamin K. Johannsen
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Benjamin K. Johannsen: https://www.federalreserve.gov/econres/benjamin-k-johannsen.htm

No 2024-095, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Researchers typically compare inflation in the new Keynesian (NK) model to published inflation measures constructed from indices like the CPI. Inflation in the standard NK model without price indexation is bounded above. The model analogue of fixed-weight inflation measures, like the CPI, is not. When inflation is in the range of values observed after 2021, there is a substantial difference between model-based and fixed-weight measures of inflation. This finding poses a challenge to using linear approximations to the NK model in environments with moderately high inflation and implies that analysts should construct data-consistent model analogues when assessing the NK model.

Keywords: New keynesian model; Inflation (search for similar items in EconPapers)
Pages: 12 p.
Date: 2024-12-20
New Economics Papers: this item is included in nep-dge, nep-inv and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-95

DOI: 10.17016/FEDS.2024.095

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