Optimising Microfoundations for Inflation Persistence

Richard Mash ()

No 457, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: We connect two major strands of the recent monetary policy literature, i) the search for well microfounded optimising models consistent with macroeconomic data, especially persistence in inflation, and ii) the wealth of newly available microeconomic data on price changing behaviour from the ECB’s Inflation Persistence Network, alongside earlier firm surveys for the US, UK and Sweden. We develop a fully optimising Phillips curve following Goodfriend and King (NBER Macro Annual,1997) that may be calibrated to virtually any time dependent pricing rule but extended to include cost push shocks and the aggregation of sectors with different pricing rules. Analytical results include a tendency for aggregate dynamics to be driven by “stickier†sectors. When calibrated to micro data the model predicts inflation persistence comparable to that in macro data with fully forward looking underlying pricing behaviour

Keywords: Monetary policy; Phillips curve; Inflation Persistence; Microfoundations (search for similar items in EconPapers)
JEL-codes: E22 E52 E58 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Optimising Microfoundations for Inflation Persistence (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:457

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