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Working Paper 2005-076D

"Inflation Dynamics: A Cross-Country Investigation"
by Pengfei Wang, and Yi Wen

We document that "persistent and lagged" inflation (with respect to output) is a world-wide phenomenon in that these short-run inflation dynamics are highly synchronized across countries. In particular, the average cross-country correlation of inflation is significantly and systematically stronger than that of output, while the cross-country correlation of money growth is essentially zero. We investigate whether standard monetary models driven by monetary shocks are consistent with the empirical facts. We find that neither the new Keynesian sticky-price model nor the sticky-information model can fully explain the data. An independent contribution of the paper is to provide a simple solution technique for solving general equilibrium models with sticky information.

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Category > Monetary Policy/Macroeconomics
Author > Yi Wen
Research Papers and Publications: JEL Code > E31
Research Papers and Publications: JEL Code > E32
Research Papers and Publications: JEL Code > E40