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Inflation
About: Inflation is a research topic. Over the lifetime, 43124 publications have been published within this topic receiving 916968 citations.
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TL;DR: In this paper, the authors developed and estimated a structural model of inflation that allows for a fraction of firms that use a backward looking rule to set prices, and they concluded that the New Keynesian Phillips curve provides a good first approximation to the dynamics of inflation.
Abstract: We develop and estimate a structural model of inflation that allows for a fraction of firms that use a backward looking rule to set prices. The model nests the purely forward looking New Keynesian Phillips curve as a particular case. We use measures of marginal cost as the relevant determinant of inflation, as the theory suggests, instead of an ad-hoc output gap. Real marginal costs are a significant and quantitatively important determinant of inflation. Backward looking price setting, while statistically significant, is not quantitatively important. Thus, we conclude that the New Keynesian Phillips curve provides a good first approximation to the dynamics of inflation.
2,644 citations
Posted Content•
TL;DR: The authors present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output, and the key features of their model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy.
Abstract: We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts of average duration three quarters, and variable capital utilization.
2,580 citations
TL;DR: In this paper, the authors developed and estimated a structural model of inflation that allows for a fraction of firms that use a backward-looking rule to set prices, and the model nests the purely forward-looking New Keynesian Phillips curve as a particular case.
2,514 citations
Posted Content•
TL;DR: In this paper, a rational expectations equilibrium in a discretionary environment where the policymaker pursues a "reasonable" objective, but where precommitments on monetary growth are precluded is established.
Abstract: Natural-rate models suggest that the systematic parts of monetary policy will not have important consequences for the business cycle. Nevertheless, we often observe high and variable rates of monetary growth, and a tendency for monetary authorities to pursue countercyclical policies. This behavior is shown to be consistent with a rational expectations equilibrium in a discretionary environment where the policymaker pursues a "reasonable" objective, but where precommitments on monetary growth are precluded. At each point in time, the policymaker optimizes subject to given inflationary expectations, which determine a Phillips Curve-type tradeoff between monetary growth/inflation and unemployment. Inflationary expectations are formed with the knowledge that policymakers will be in this situation. Accordingly, equilibrium excludes systematic deviations between actual and expected inflation, which means that the equilibrium unemployment rate ends up independent of "policy" in our model. However, the equilibrium rates of monetary growth/inflation depend on various parameters, including the slope of the Phillips Curve, the costs attached to unemployment versus inflation, and the level of the natural unemployment rate. The monetary authority determines an average inflation rate that is "excessive," and also tends to behave countercyclically. Outcomes are shown to improve if a costlessly operating rule is implemented in order to precomrnit future policy choices in the appropriate manner. The value of these precommitments -- that is, of long-term agreements between the government and the private sector -- underlies the argument for rules over discretion. Discretion is the sub-set of rules that provides no guarantees about the government's future behavior.
2,465 citations
TL;DR: In this article, the authors estimate the extent to which various assets were hedges against the expected and unexpected components of the inflation rate during the 1953-1971 period and find that U.S. government bonds and bills were a complete hedge against expected inflation, and private residential real estate was a complete hedging against both expected and expected inflation.
2,449 citations