An evolutionary theory of inflation inertia
Title: An evolutionary theory of inflation inertia
Citation: Journal of the European Economic Association, 2007, 5, 2-3, 433-443
We provide a simple theory of inflation inertia in a staggered price setting framework à la Calvo (1983). Contrary to Calvo's formulation, the frequency of price changes is allowed to vary according to an evolutionary criterion. Inertia is the direct result of gradual adjustment in this frequency following a permanent change in the rate of money growth.
Subject: Monetary economics; Inflation rate; Monetary models; Price theory; Inflation inertia
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