Resource title

Intrinsic inflation persistence

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It is often argued that the New Keynesian Phillips curve is at odds with the data because it cannot explain inflation persistence — the difficulty of returning inflation immediately to target after a shock without any loss of output. This paper explains how a model where newer prices are stickier than older prices is consistent with this phenomenon, even though it introduces no deviation from optimizing, forwards-looking price setting. The probability of adjusting new and old prices is estimated using a novel method that draws only on macroeconomic data, and the findings strongly support the premise of the model.

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en

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application/pdf

Resource resource URL

http://eprints.lse.ac.uk/3739/1/Intrinsic_Inflation_Persistence.pdf

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