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Working Paper
A Theory of Intrinsic Inflation Persistence
We propose a novel theory of intrinsic inflation persistence by introducing trend inflation and variable elasticity of demand in a model with staggered price and wage setting. Under nonzero trend inflation, the variable elasticity generates intrinsic persistence in inflation through a measure of price dispersion stemming from staggered price setting. It also introduces intrinsic persistence in wage inflation under staggered wage setting, which affects price inflation. With the theory we show that inflation exhibits a persistent, hump-shaped response to a monetary policy shock. We also show ...
Briefing
Untangling Persistent Inflation: Understanding the Factors at Work
While recent inflation numbers have been encouraging, persistent inflationary pressures remain a topic of concern and policy deliberation. This article delves into some candidate drivers of inflation persistence and their implications for monetary policy. In particular, we explore factors contributing to the persistence of inflation, such as intrinsic persistence, complementarities, indexation, unanchoring of expectations, fiscal policy and other persistent inflationary shocks.