Inflation Persistence When Price Stickiness Differs Between Industries

Kevin Sheedy

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: There is much evidence that price-adjustment frequencies vary widely across industries. This paper shows that inflation persistence is lower with heterogeneity in price stickiness than without it, taking as given the degree of persistence in variables affecting inflation. Differences in the frequency of price adjustment mean that the pool of firms which responds to any macroeconomic shock is unrepresentative, containing a disproportionately large number of firms from industries with more flexible prices. Consequently, this group of firms is more likely to reverse any initial price change after a shock has dissipated, making inflation persistence much harder to explain.

Keywords: Inflation persistence; heterogeneity; price stickiness; New Keynesian Phillips Curve (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Inflation persistence when price stickiness differs between industries (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0838

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