Extending recent theoretical contributions on sources of inflation inertia, we argue that monetary uncertainty accounts for sluggish expectations adjustment to nominal disturbances. Estimating a model in which rational individuals learn over time about shifts in U.S. monetary policy and the...

One of the key inputs for inflation targeting regime is the right identification of inflationary or disinflationary pressures. These pressures are usually approximated by the output gap. In this paper we provide an estimation of the Peruvian output gap using a multivariate unobserved component...

Inflation can “grease†the wheels of the labor market by relaxing downward wage rigidity but it can also increase uncertainty and have a negative “sand†effect. This paper studies the grease effect of inflation by looking at whether the interaction between inflation and labor...

There are two crucial conditions for cross-sectional aggregation of AR(1) parameters to produce long memory: 1) heterogeneity and 2) proximity to the unit root. We analyze role of moments, namely the mean and variance, of the distribution of the AR(1) coefficients in generating long memory. The...

This paper develops a model which can explain the hump-shaped impulse response of inflation to a monetary shock. A standard New Keynesian (NK) model is augmented so as to include dynamic externality with sticky wages and variable capital utilization. In our analysis, we assume purely...

This paper shows the way how persistent world inflation shocks hitting a small open economy can re-weight the importance of domestic and foreign factors in the determination of prices. In this sense, we study why the recently observed global disinflation environment may imply a weakening of the...

We examine the impact of public information in an economy where agents also have diverse private information. Our work builds on seminal contributions by Townsend (1983) and Phelps (1983), and more recently Woodford (2002), which emphasized the importance of higher-order beliefs – that is,...

This paper proposes a new empirical representation of US inflation expectations in a Stace-Space Markov-Switching framework in order to identify the expectations regimes which are associated with short and long term Phillips curves. Results suggest that the dynamics of in‡ation expectation...

In this paper we propose a general component-driven model to analyze economic data with different characteristics (or regimes) in different time periods. Motivated by empirical data characteristics, our discussion focuses on a simple model driven by a random walk component and a stationary ARMA...

We introduce continuous-time models that capture the salient features of the short-term interest rate and remain tractable for asset pricing applications. We extend classical specifications within and outside of the affine class to multi-factor settings with latent variables that are readily...