Market Power and Inflation

Market Power and Inflation

This paper examines the extent to which a decline in market power could have contributed to the general decline in inflation rates experienced in developed countries during the 1990s. *Staff economist of the Division of International Finance of the Federal Reserve Board. Email: [email protected]. I wish to thank Jon Faust, Steve Kamin, and Jeremy Rudd for valuable comments. This paper repr...

Assessing the Predictive Power of Labor-Market Indicators of Inflation

This paper examines two different measures of wages as predicators of prices in a vector errorcorrection framework using quarterly data for the U.S. for the period from 1947.Q1 through 2008.Q1. Based on cointegration and a series of exogeneity tests, it is found that: 1) there is a stable, long-run relationship between the Consumer Price Index (CPI) and the Personal Consumption Expenditure Defl...

Inflation and Financial Market Performance

Labor-Market Frictions and Optimal Inflation∗

In main theories of monetary non-neutrality the Ramsey optimal inflation rate varies between the negative of the real interest rate and zero. This paper explores how the interaction of nominal wageand search and matching frictions affect the planners choice. We show that adding the combination of such frictions to the canonical monetary model can generate an optimal inflation that is significan...

Flexible inflation targeting and labor market inefficiencies☆

a r t i c l e i n f o Do congestion externalities offer a reason to depart from complete price stability as the only goal of monetary policy in a New Keynesian model featuring search frictions, and under what conditions is the welfare cost of labor-market distortions sizable? This paper tries to answer these questions by deriving a linear quadratic framework for optimal monetary policy analysis...