Staggered price contracts and inflation persistence

Despite their popularity as theoretical tools for illustrating the effects of nominal rigidities, some have questioned whether models based on Taylor-style staggered contracts can match the persistence of the empirical inflation process. This paper presents some general theoretical results about Taylor-style models. It is shown that these models do not have a problem matching high autocorrelations for inflation. However, they fail to explain a key feature of reduced-form Phillips-curve regressions: The positive dependence of inflation on its own lags. It is shown that staggered price contracting models instead predict that the coefficients on these lag terms should be negative.

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Alternative title:	some general results
Year of publication:	2004
Authors:	Whelan, Karl
Publisher:	European Central Bank
Subject:	Geldpolitik \| Monetary Policy \| Zentralbank \| Central Bank

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Extent:	1116160 bytes 45 p. application/pdf
Series:	Working paper series / European Central Bank ; 417
Type of publication:	Book / Working Paper
Language:	English
Classification:	E31 - Price Level; Inflation; Deflation ; Currency. Monetary policy ; Individual Working Papers, Preprints
Source:	ArchiDok

Persistent link: https://www.econbiz.de/10009639477