This paper looks at the implications of heterogeneous beliefs for inflation dynamics. Following a monetary policy shock …, inflation peaks after output, is inertial, and can be characterized by a Hybrid Phillips Curve. It presents a novel channel … through which systematic monetary policy can affect the degree of inflation persistence. It does so by altering the effective …

assumptions about the velocity of money. Homothetic preferences generate Marshallian demands which are linear in own price … negative steady-state inflation rate. We also consider how the introduction of capital and bonds would fit into the framework. …