Can rational expectations sticky-price models explain inflation dynamics?

Jeremy B. Rudd and Karl Whelan
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Jeremy B. Rudd: https://www.federalreserve.gov/econres/jeremy-rudd.htm

No 2003-46, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The canonical inflation specification in sticky-price rational expectations models (the new-Keynesian Phillips curve) is often criticized on the grounds that it fails to account for the dependence of inflation on its own lags. In response, many recent studies have employed a \"hybrid\" sticky-price specification in which inflation depends on a weighted average of lagged and expected future values of itself, in addition to a driving variable such as the output gap. In this paper, we consider some simple tests of the hybrid model that are derived from the model's closed-form solution. Our results suggest that the hybrid model provides a poor description of empirical inflation dynamics, and that there is little evidence of the type of rational forward-looking behavior implied by the model.

Keywords: Inflation (Finance); Phillips curve (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (33)

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Related works:
Journal Article: Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics? (2006)
Working Paper: Can rational expectations sticky-price models explain inflation dynamics? (2006)
Working Paper: Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics (2003)
Working Paper: Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics? (2003)
Working Paper: Can rational expectations sticky-price models explain inflation dynamics (2003)
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