Trend inflation and an empirical test of real rigidities

Marenčák, Michal (2022) Trend inflation and an empirical test of real rigidities. Department of Economics Working Paper Series, 323. WU Vienna University of Economics and Business, Vienna.


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Positive trend inflation resolves the observational equivalence of various sources of real rigidities which are first-order equivalent under zero trend inflation. This paper builds on this observation to assess the empirical performance of three widely used types of real rigidities — firm-specific capital, firm-specific wages and a kinked-demand curve — in matching the U.S. inflation dynamics. Firm-specific wages outperform the kinked-demand curve and firm-specific capital in terms of empirical fit. We document that positive trend inflation might reduce the ability of firm-specific factors to prolong the real affects of monetary disturbances.

Item Type: Paper
Keywords: trend inflation, real rigidity, Calvo pricing, price dispersion, monetary policy, inflation persistence
Classification Codes: JEL E31, E52
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 07 Jun 2022 12:13
Last Modified: 07 Jun 2022 12:13


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