Inflation Persistence

Jeffrey C. Fuhrer (2009) - Inflation Persistence, Federal Reserve Bank of Boston WP 09-14

This paper examines the concept of inflation persistence in macroeconomic theory. It begins with a definition of persistence, emphasizing the difference between reduced‐form and structural persistence. It then examines a number of empirical measures of reduced‐form persistence, considering the possibility that persistence may have changed over time. The paper then examines the theoretical sources of persistence, distinguishing “intrinsic” from “inherited” persistence, and deriving a number of analytical results on persistence. It summarizes the implications for persistence from the literatures on “sticky‐information”
models, learning models, and so‐called “trend inflation models,” providing some new results throughout.