Publication

This paper revisits the common assertion that inflation is a jump variable in the new Phillips curve (NPC) which is at odds with the stylized fact of inflation persistence. The authors argue that this 'persistency puzzle' is misleading and show that when the discount rate is positive in a general equilibrium setting, standard wage-price staggering models can generate both substantial inflation persistence and a nonzero inflation-unemployment tradeoff in the long-run. They also show that the cumulative amount of inflation undershooting is associated with a downward-sloping NPC in the long-run.