Coordination, fair treatment and inflation persistence
By: John C. Driscoll and Steinar Holden.
Contributors: Holden, Steinar.
Series: Finance and economics discussion series ;; 2003-34; Finance and economics discussion series (Online) ;; 2003-34.
Publisher: Federal Reserve Board
Published: 2003
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Subjects: Inflation (Finance) -- United States -- Mathematical models.
Description: "Most wage-contracting models with rational expectations fail to replicate the persistence in inflation observed in the data.  We argue that coordination problems and multiple equilibria are the keys to explaining inflation persistence.  We develop a wage-contracting model in which workers are concerned about being treated fairly.  This model generates a continuum of equilibria (consistent with a range for the rate of unemployment), where workers want to match the wage set by other workers.  If workers' expectations are based on the past behavior of wage growth, these beliefs will be self-fulfilling and thus rational.  Based on quarterly U.S.  data over the period 1955-2000, we find evidence that inflation is more persistent between unemployment rates of 4.7 and 6.5 percent, than outside these bounds, as predicted by our model"--Federal Reserve Board web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 7/23/2004.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.