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|Title:||Inflation persistence revisited |
Snower, Dennis J.
|Issue Date:||2004 |
|Series/Report no.:||Working paper series, Department of Economics, Queen Mary College, London 518|
|Abstract:||It is commonly asserted that inflation is a jump variable in the New Keynesian Phillips curve, and thus wage-price inertia does not imply inflation inertia. We show that this "inflation flexibility proposition" is highly misleading, relying on the assumption that real variables are exogenous. In a general equilibrium setting (in which real variables not only affect inflation, but are also influenced by it) the phenomenon of inflation inertia re-emerges. Under plausible parameter values, high degrees of inflation persistence (prolonged after-effects of inflation in response to temporary money growth shocks) and under-responsiveness (prolonged effects in response to permanent shocks) can arise in the context of standard wage-price staggering models.|
|Subjects:||Inflation persistence , Wage-price staggering , New Keynesian Phillips curve , Nominal inertia , Monetary policy , Forward-looking expectations|
|Document Type:||Working Paper|
|Appears in Collections:||Working Paper Series, School of Economics and Finance, Queen Mary, University of London |
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