Journal Article


Karl Whelan
Jeremy Rudd



pricing united states inflation expectations rational expectations economic theory united states economic policy inflation finance pricing rational expectations economic theory inflation finance mathematical models

Can rational expectations sticky-price models explain inflation dynamics? (2006)

Abstract The canonical inflation specification in sticky-price rational expectations models (the new-Keynesian Phillips curve) is often criticized for failing to account for the dependence of inflation on its own lags. In response, many studies employ a “hybrid” specification in which inflation depends on its lagged and expected future values, together with a driving variable such as the output gap. We consider some simple tests of the hybrid model that are derived from its closed form. We find that the hybrid model describes inflation dynamics poorly, and find little empirical evidence for the type of rational, forward-looking behavior that the model implies.
Collections Ireland -> University College Dublin -> School of Economics
Ireland -> University College Dublin -> College of Social Sciences and Law
Ireland -> University College Dublin -> Economics Research Collection

Full list of authors on original publication

Karl Whelan, Jeremy Rudd

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Karl Whelan
University College Dublin
Total Publications: 70