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Working Paper
The Inflation Accelerator
We develop a tractable sticky price model in which the fraction of price changesevolves endogenously over time and, consistent with the evidence, increases with inflation. Because we assume that firms sell multiple products and choose how many, but not which, prices to adjust in any given period, our model admits exact aggregation and reduces to a one-equation extension of the Calvo model. This additional equation determines the fraction of price changes. The model features a powerful inflation accelerator – a feedback loop between inflation and the fraction of price changes – which ...