Type

Report

Authors

Jeremy Rudd
Karl Whelan

Subjects

Economics

Topics
rational expectations economic theory critical policy analysis inflation finance mathematical models output gap literature modelling lucas critique

Modelling inflation dynamics : a critical review of recent research (2005)

Abstract In recent years, a broad academic consensus has arisen around the use of rational expectations sticky-price models to capture inflation dynamics. These models are seen as providing an empirically reasonable characterization of observed inflation behavior once suitable measures of the output gap are chosen; and, moreover, are perceived to be robust to the Lucas critique in a way that earlier econometric models of inflation are not. We review the principal conclusions of this literature concerning: 1) the ability of these models to fit the data; 2) the importance of rational forward-looking expectations in price setting; and 3) the appropriate measure of inflationary pressures. We argue that existing rational expectations sticky-price models fail to provide a useful empirical description of the inflation process, especially relative to traditional econometric Phillips curves of the sort commonly employed for policy analysis.
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

Jeremy Rudd, Karl Whelan

Experts in our system

1
Karl Whelan
University College Dublin
Total Publications: 69