Calvo, Guillermo; Kumhof, Michael; Celasun, Oya - National Bureau of Economic Research (NBER) - 2003
This paper develops a model of inflation inertia based on optimizing forward looking staggered price setting in a small … open economy. Unlike in current models of sticky prices, transitions to a lower steady state inflation rate take time even … these output losses and the gains from smaller inflationary distortions. For reasonable parameter values inflation …