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http://hdl.handle.net/10419/3308
  
Title:Inflation persistence revisited PDF Logo
Authors:Karanassou, Marika
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
JEL:E31
E63
E42
E32
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Working Paper Series, School of Economics and Finance, Queen Mary, University of London

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