Damjanovic, T. and Nolan, C. (2010) Relative price distortions and inflation persistence. Economic Journal, 120(547), pp. 1080-1099. (doi: 10.1111/j.1468-0297.2009.02329.x)
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Abstract
Sticky-price models often suggest that relative price distortion is a major cost of inflation. We provide an intuition for this: Even at low rates, inflation strongly affects price dispersion which in turn has an impact on the economy qualitatively similar to, and of the order of magnitude of, a negative shift in productivity. The utility cost of price dispersion is quantified and its impact on optimal monetary policy discussed. Price dispersion is incorporated into a linearised model. Strikingly, a contractionary nominal shock has a persistent, negative hump-shaped impact on inflation but may have a positive hump-shaped impact on output.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | Nolan, Professor Charles |
Authors: | Damjanovic, T., and Nolan, C. |
Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HJ Public Finance |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Economic Journal |
ISSN: | 0013-0133 |
ISSN (Online): | 1468-0297 |
Published Online: | 12 January 2010 |
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