The inflation persistence of staggered contracts
By: Luca Guerrieri.
Series: International finance discussion papers ;; no. 734; International finance discussion papers (Online) ;; no. 734.
Publisher: Federal Reserve Board
Published: 2002
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "One of the criticisms routinely advanced against models of the business cycle with staggered contracts is their inability to generate inflation persistence.  This paper finds that staggered Taylor contracts are, in fact, capable of reproducing the inflation persistence implied by U.S.  data.  Following Fuhrer and Moore, I capture the moments that the contract specification needs to replicate by using the correlograms from a small vector autoregression (VAR) that includes inflation among the endogenous variables.  A simple structural model substitutes the inflation equation from the VAR with the contract specification.  I estimate the contract parameters in the structural model by maximum likelihood.  The correlogram for the endogenous variables from the estimated structural model, including that for inflation, are very close to the correlograms from the VAR (and are contained within their 90% confidence intervals).  By the same metric, where Taylor contracts do not fare well is in reproducing the cross-correlations between inflation and output"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 10/12/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.