Quarterly Journal of Economics Vol. 110 No. 1 1995
Inflation Persistence
Abstract
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.
- DOI
- 10.2307/2118513
- Volume
- 110
- Issue
- 1
- Pages
- 127-159
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref