EconPapers    
Economics at your fingertips  
 

A Note on Inflation Persistence

Steinar Holden () and John Driscoll ()

No 8690, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Macroeconomists have for some time been aware that the New Keynesian Phillips curve, though highly popular in the literature, cannot explain the persistence observed in actual inflation. We argue that two of the more prominent alternative formulations, the Fuhrer and Moore (1995) relative contracting model and the Blanchard and Katz (1999) reservation wage conjecture, are highly problematic. Fuhrer and Moore (1995)'s formulation generates inflation persistence, but this is a consequence of their assuming that workers care about the past real wages of other workers. Making the more reasonable assumption that workers care about the current real wages of other workers, one obtains the standard formulation with no inflation persistence. The Blanchard and Katz conjecture turns out to imply that inflation depends negatively on itself lagged, i.e. the opposite of the empirical regularity.

JEL-codes: E31 E3 (search for similar items in EconPapers)
Date: 2001-12
New Economics Papers: this item is included in nep-mon
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Published as Holden, Steinar and John C. Driscoll. "Inflation Persistence and Relative Contracting." The American Economic Review 93, 4 (Nov 2003): 1369-1372.

Downloads: (external link)
http://www.nber.org/papers/w8690.pdf (application/pdf)

Related works:
Working Paper: A note on inflation persistence (2001) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8690

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8690

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-06-20
Handle: RePEc:nbr:nberwo:8690