Relative price distortions and inflation persistence

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)

Full text not currently available from Enlighten.

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
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

University Staff: Request a correction | Enlighten Editors: Update this record