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Modeling Inflation Dynamics: A Critical Review of Recent Research

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  • JEREMY RUDD
  • KARL WHELAN

Abstract

In recent years, a broad academic consensus has arisen that favors using rational expectations sticky‐price models to capture inflation dynamics. 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 models fail to provide a useful empirical description of the inflation process.

Suggested Citation

  • Jeremy Rudd & Karl Whelan, 2007. "Modeling Inflation Dynamics: A Critical Review of Recent Research," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 155-170, February.
    • Handle: RePEc:wly:jmoncb:v:39:y:2007:i:s1:p:155-170
    DOI: 10.1111/j.1538-4616.2007.00019.x
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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