Inflation persistence. (English) Zbl 0834.90037

Fuhrer, Jeff; Moore, George

Q. J. Econ. 110, No. 1, 127-159 (1995).

Summary: This paper demonstrates that the behavior of the conventional Phelps- Taylor model of overlapping wage contracts stands in stark contrast with important features of U.S. macro data for inflation and output. In particular, the Phelps-Taylor specification implies far too little inflation persistence. We present a new contracting model, in which agents are concerned with relative real wages, that is data-consistent. In a specification that nests both models, we resoundingly reject the conventional contracting model, but cannot reject the new contracting model.

MSC:

91B62	Economic growth models
91B82	Statistical methods; economic indices and measures

Keywords:

overlapping wage contracts