Inflation Dynamics: A Cross-Country Investigation

We document that "persistent and lagged" in‡ation (with respect to output) is a worldwide phenomenon in that these short-run in‡ation dynamics are highly synchronized across countries. In particular, the average cross-country correlation of in‡ation is signi…cantly 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 …nd 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.