Modelling inflation dynamics : a critical review of recent research

Files in This Item:
File Description SizeFormat 
whelank_workpap_020.pdf340.37 kBAdobe PDFDownload
Title: Modelling inflation dynamics : a critical review of recent research
Authors: Rudd, Jeremy
Whelan, Karl
Permanent link:
Date: Nov-2005
Abstract: In recent years, a broad academic consensus has arisen around the use of rational expectations sticky-price models to capture inflation dynamics. These models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen; and, moreover, are perceived to be robust to the Lucas critique in a way that earlier econometric models of inflation are not. We review the principal conclusions of this literature concerning: 1) the ability of these models to fit the data; 2) the importance of rational forward-looking expectations in price setting; and 3) the appropriate measure of inflationary pressures. We argue that existing rational expectations sticky-price models fail to provide a useful empirical description of the inflation process, especially relative to traditional econometric Phillips curves of the sort commonly employed for policy analysis.
Type of material: Technical Report
Publisher: Central Bank of Ireland
Copyright (published version): 2005 Copyright Central Bank of Ireland
Subject LCSH: Inflation (Finance)--Mathematical models
Rational expectations (Economic theory)
Other versions:
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Research Collection

Show full item record

Page view(s) 50

checked on May 25, 2018

Download(s) 10

checked on May 25, 2018

Google ScholarTM


This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.