The existence of downward nominal price and wage rigidity has been used to argue against the adoption of zero inflation targets. A good deal is known about the nature and extent of price flexibility in Australia. However, little is known about nominal wage flexibility since investigations have...

In the past decade, inflation in Australia and most other industrialised countries has been extremely well behaved. An important question is whether this reflects a series of favourable shocks to prices or a more fundamental change in the inflation process. In this paper, we explore developments...

Despite sound theoretical foundations, a drawback of the New Keynesian model is its inability to generate adequate persistence in the variables it seeks to explain.A common solution is to modify the model to include lagged variables.However, this is unsatisfactory, as many such modifications...