In New Keynesian models favourable cost-push shocks lower inflation and increase output. Yet, when the central bank's inflation target is not perfectly observed these shocks turn contractionary as agents erroneously perceive a temporary reduction in the target. This effect is amplified when...

Recent literature reaches contrasting conclusions on the ability of price/wage staggering models to generate output persistence. We derive fairly general results from a stylised log-linear model which encompasses most of the microfounded model of price/wage staggering. Our results highlight the...