It is widely believed that inflation inertia varies with the policy pursued. In a novel experiment, price setters determine inflation rates and react to a central bank's indicator, which is implemented exogenously either as cold turkey or gradual disinflation. In a third treatment, subjects in...

This paper compares the New Keynesian Phillips curve with the hybrid Phillips curve for its ability to reproduce observed in.ation and output dynamics. The analysis is based on impulse responses of a miniature general equilibrium model incorporating price and in.ation inertia as the only...

We show that a so-called expectations-based optimal monetary policy rule has desirable properties in a standard New Keynesian model augmented with a cost channel and inflation rate expectations that are partly backward-looking. In particular, optimal monetary policy under commitment is...

Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade-off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare-relevant...

This note proposes a full description of the Calvo price-setting model based on partial prices indexation and studies the interaction between partial indexation and trend inflation. We show that to use a hybrid version of the Phillips curve partly decreases the risks of overestimate due to the...

We provide new evidence on the fit of the hybrid Phillips curve based on indexation of prices to lagged inflation and trend inflation for the Euro area and the United States over the period 1970-2002. The GMM-West estimates suggest that (i) a full indexation scheme is not data consistent whereas...

Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR)instrument rules. Using the standard New...

This paper characterizes the optimal inflation buffer consistent with a zero lower bound on nominal interest rates in a New Keynesian sticky-price model. It is shown that a purely forward-looking version of the model that abstracts from inflation inertia would significantly underestimate the...

It has been argued by several authors that the inflationary dynamics in Brazil follow a unit root process, thus displaying some inertia. Indeed, Cati, et al. (Journal of Applied Econometrics, 1999) have found that the inflationary dynamics in Brazil are nearly fully inertial. We estimate the...