Endogenous Price Stickiness, Trend Inflation, and the New Keynesian Phillips Curve

Burriel-Llombart, Pablo; Khan, Hashmat; Rudolf, Barbara

doi:10.2139/ssrn.492043

Cited by 33 publications

(50 citation statements)

References 33 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…King and Wolman (1996) overlooks the magnitude of the effect of trend inflation because of considering only values of θ ≤ 4.3. 15 Not surprisingly the loss is also bigger in a model with strategic complementarity, which amplifies the non-linearities (see Bakhshi et al (2002)). 16 This might be the reason why virtually no sticky price model has been devoted to such an issue, with the exception of some stylized models (i.e., Dazinger (1988), Ireland (1995), Ascari and Rankin (2002) To analyze how the dynamics of the model depend on trend inflation, the case with fixed capital and σ = 1 is examined.…”

Section: Log-linearizationmentioning

confidence: 98%

Staggered Prices and Trend Inflation: Some Nuisances

2003

View full text Add to dashboard Cite

Most of the papers in the sticky-price literature are based on a log-linearization around the zero inflation steady state, a simplifying but counterfactual assumption. This paper shows that when trend inflation is considered, both the long-run and the short-run properties of DGE models based on the Calvo staggered price model change dramatically. It follows that results obtained by models log-linearized around a zero inflation steady state are quite misleading. Furthermore, the same is not true for models based on the Taylor staggered price model, which is robust to changes in trend inflation. As a conclusion, the Taylor model is to be preferred, unless one is willing to index nominal variables.JEL classification: E24, E32.

show abstract

Section: Log-linearizationmentioning

confidence: 98%

Staggered Prices and Trend Inflation: Some Nuisances

2003

View full text Add to dashboard Cite

show abstract

“…To model the split between cash and credit goods, we follow Khan et al (2003) by assuming that buying goods with credit involves a cost in terms of "shopping time", n s . Then if we normalize the total time endowment to unity, the household's time constraint is…”

Section: Householdsmentioning

confidence: 99%

“…More recent work by Khan et al (2003) uses a richer model in which in ‡ation or de ‡ation has costs arising from price dispersion. They …nd the optimal rate of in ‡ation to be higher than the Friedman rule, but still negative.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Hyperbolic Discounting and Positive Optimal Inflation

Graham

Snower

2012

Macroecon. Dynam.

View full text Add to dashboard Cite

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan, King, and Wolman [Review of Economic Studies10 (4), 825–860] uses a richer model but still finds deflation optimal. In an otherwise standard New Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations.

show abstract

“…With respect to past experience, Clarida, Galí, and Gertler (2000) have suggested that insufficient responsiveness of nominal interest rates to expected inflation in the 1970s-i.e., violations of the Taylor principle that allowed 1 Most recent work on sticky-price models abstracts from positive trend inflation rates (e.g., Woodford 2003). Two exceptions are Bakhshi et al (2002) and Ascari (2004). These authors illustrate how the equilibrium in a Calvo staggeredprice-setting model (Calvo 1983) may not exist for high values of trend inflation, because the infinite sum on which the currently chosen nominal price is based may not converge for high rates of inflation.…”

Section: Introductionmentioning

confidence: 99%

Is Moderate-to-High Inflation Inherently Unstable?

Kiley

2004

SSRN Journal

View full text Add to dashboard Cite

The data across time and countries suggest the level and variance of inflation are highly correlated. This paper examines the effect of trend inflation on the ability of the monetary authority to ensure a determinate equilibrium and inflation stability in a sticky-price model. Trend inflation increases the importance of future marginal costs for current price setters in a staggered-price-setting model. The greater importance of expectations makes it more difficult for the monetary authority to ensure stability in two senses. First, equilibrium determinacy is more difficult to achieve through reasonable specifications of nominal-interest-rate (Taylor) rules at moderate-to-high levels of inflation (e.g., at levels around 4 percent per year). In addition, the volatility of inflation induced by cost-push shocks is, all else equal, higher at higher rates of inflation under a reasonable specification of the nominal-interest-rate rule. If monetary policymakers have followed these types of policy rules in the past, these results may explain, in part, why moderate-to-high inflation is associated with inflation volatility. JEL Codes: E3, E5.

show abstract

Endogenous Price Stickiness, Trend Inflation, and the New Keynesian Phillips Curve

Cited by 33 publications

References 33 publications

Staggered Prices and Trend Inflation: Some Nuisances

Staggered Prices and Trend Inflation: Some Nuisances

Hyperbolic Discounting and Positive Optimal Inflation

Is Moderate-to-High Inflation Inherently Unstable?

Contact Info

Product

Resources

About