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Cogley, Timothy, and
Argia M. Sbordone. 2008. "Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve."
,
98(5): 2101-26.
Show Article Details
DOI: 10.1257/aer.98.5.2101
Abstract:Purely forward-looking versions of the New Keynesian Phillips curve (NKPC)
generate too little inflation persistence. Some authors add ad hoc backwardlooking
terms to address this shortcoming. We hypothesize that inflation persistence
results mainly from variation in the long-run trend component of
inflation, which we attribute to shifts in monetary policy. We derive a version of
the NKPC that incorporates a time-varying inflation trend and examine whether
it explains the dynamics of inflation. When drift in trend inflation is taken into
account, a purely forward-looking version of the model fits the data well, and
there is no need for backward-looking components. (JEL E12, E31, E52)
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Authors:
Cogley, Timothy (U CA, Davis)
Sbordone, Argia M. (Federal Reserve Bank of New York)
JEL Classifications:
E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E31: Price Level; Inflation; Deflation
E52: Monetary Policy
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