Menu costs and the long-run output–inflation trade-off

In standard, New Keynesian models, there exists an unlimited long-run trade-off between output and inflation. But when we allow for an endogenous frequency of price adjustment, this is replaced by an inverted U-shaped relationship.

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Bibliographic Details
Published in:Economics letters 2002-06, Vol.76 (1), p.95-100
Main Authors: Devereux, Michael B., Yetman, James
Format: Article
Language:English
Subjects:
Inflation
Menu costs
Phillips curve
Prices
Sticky prices
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Description
Summary:In standard, New Keynesian models, there exists an unlimited long-run trade-off between output and inflation. But when we allow for an endogenous frequency of price adjustment, this is replaced by an inverted U-shaped relationship.
ISSN:0165-1765
1873-7374
DOI:10.1016/S0165-1765(02)00022-8