TY  - JOUR
AU  - Holden,Steinar
AU  - Driscoll,John C.
TI  - A Note on Inflation Persistence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8690
PY  - 2001
Y2  - December 2001
UR  - http://www.nber.org/papers/w8690
L1  - http://www.nber.org/papers/w8690.pdf
N1  - Author contact info:
sholden

John C. Driscoll
Federal Reserve Board
20th and Constitution Ave., NW
Washington, DC 20551
Tel: (202)452-2628
Fax: (202)452-2301
E-Mail: John.C.Driscoll@frb.gov
AB  - Macroeconomists have for some time been aware that the New Keynesian Phillips curve, though highly popular in the literature, cannot explain the persistence observed in actual inflation. We argue that two of the more prominent alternative formulations, the Fuhrer and Moore (1995) relative contracting model and the Blanchard and Katz (1999) reservation wage conjecture, are highly problematic. Fuhrer and Moore (1995)'s formulation generates inflation persistence, but this is a consequence of their assuming that workers care about the past real wages of other workers.  Making the more reasonable assumption that workers care about the current real wages of other workers, one obtains the standard formulation with no inflation persistence. The Blanchard and Katz conjecture turns out to imply that inflation depends negatively on itself lagged, i.e. the opposite of the empirical regularity.
ER  -