Please use this identifier to cite or link to this item:
http://dspace.mediu.edu.my:8181/xmlui/handle/10419/4031| Title: | Inflation persistence and the Philips curve revisited |
| Keywords: | E42 E63 E31 E32 ddc:330 Inflation dynamics Persistence Wage-price staggering New Phillips curve Frictional growth Monetary policy Inflation Hysteresis New-Keynesian Phillips Curve Preisrigidität Lohnrigidität Theorie |
| Issue Date: | 16-Oct-2013 |
| Publisher: | Kiel Institute for the World Economy (IfW) Kiel |
| Description: | A major criticism against staggered nominal contracts is that they give rise to the so called "persistency puzzle" - although they generate price inertia, they cannot account for the stylised fact of inflation persistence. It is thus commonly asserted that, in the context of the new Phillips curve (NPC), inflation is a jump variable. We argue that this "persistency puzzle" is highly misleading, relying on the exogeneity of the forcing variable (e.g. output gap, marginal costs, unemployment rate) and the assumption of a zero discount rate. We show that when the discount rate is positive in a general equilibrium setting (in which real variables not only affect inflation, but are also influenced by it), standard wage-price staggering models can generate both substantial inflation persistence and a nonzero inflation-unemployment tradeoff in the long-run. This is due to frictional growth, a phenomenon that captures the interplay of nominal staggering and permanent monetary changes. We also show that the cumulative amount of inflation undershooting is associated with a downward-sloping NPC in the long-run. |
| URI: | http://koha.mediu.edu.my:8181/xmlui/handle/10419/4031 |
| Other Identifiers: | http://hdl.handle.net/10419/4031 ppn:534972969 ppn:534972969 |
| Appears in Collections: | EconStor |
Files in This Item:
There are no files associated with this item.
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.