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Modelling inflation dynamics: a critical review of recent research

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

No 2005-66, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In recent years, a broad academic consensus has arisen around the use of rational expectations sticky-price models to capture inflation dynamics. These models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen; and, moreover, are perceived to be robust to the Lucas critique in a way that earlier econometric models of inflation are not. We review the principal conclusions of this literature concerning: 1) the ability of these models to fit the data; 2) the importance of rational forward-looking expectations in price setting; and 3) the appropriate measure of inflationary pressures. We argue that existing rational expectations sticky-price models fail to provide a useful empirical description of the inflation process, especially relative to traditional econometric Phillips curves of the sort commonly employed for policy analysis and forecasting.

Keywords: Inflation (Finance); Econometric models (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Modeling Inflation Dynamics: A Critical Review of Recent Research (2007)
Journal Article: Modeling Inflation Dynamics: A Critical Review of Recent Research (2007) Downloads
Working Paper: Modeling inflation dynamics: a critical review of recent research (2007) Downloads
Working Paper: Modelling Inflation Dynamics: A Critical Review of Recent Research (2005) Downloads
Working Paper: Modelling inflation dynamics: a critical review of recent research (2005) Downloads
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