Staggered price contracts and inflation persistence : some general results

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Title: Staggered price contracts and inflation persistence : some general results
Authors: Whelan, Karl
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Date: Oct-2004
Abstract: 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 the 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.
Type of material: Technical Report
Publisher: Central Bank of Ireland
Copyright (published version): 2004 Copyright Central Bank of Ireland
Subject LCSH: Inflation (Finance)--Mathematical models
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Language: en
Status of Item: Not peer reviewed 2008-06-12T14:26:55Z
Appears in Collections:Economics Research Collection

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