An Evolutionary Theory of Inflation Inertia
Title: An Evolutionary Theory of Inflation Inertia
Publisher: European University Institute
Series/Number: EUI ECO; 2006/33
We provide a simple theory of inflation inertia in a staggered price setting frame- work a 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.
Type of Access: openAccess