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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 ...
Speech
Credible and Incredible Disinflations
St. Louis Fed President Jim Bullard talked about “credible” versus “incredible” disinflations during a panel discussion at “The Credibility of Government Policies: Conference in Honor of Guillermo Calvo” at Columbia University.He posed the question of whether the Fed will be able to return inflation to 2% relatively easily and quickly or whether a substantial recession will occur, as was the case under former Fed Chair Paul Volcker. Bullard noted that the Volcker disinflation was costly but “incredible”—initially, few believed that the Fed was serious about reducing ...