No. 619: The Elusive Persistence: Wage and Price Rigidities, the Phillips Curve, and Inflation Dynamics
October 1, 2007
We review the main New Keynesian inflation equations that have arisen as a result of aggregation from individual firms' price rigidities. We find that, on the whole, they cannot account for inflation persistence, a key feature of the empirical dynamics of inflation, and with important policy implications. The only exception seems to be when price stickiness is combined with wage rigidity and staggering.
J.E.L classification codes: E31, E32
Keywords:Inflation rigidity, Price stickiness, Phillips curve