Information, inflation dynamics and endogenous pricing rules

Abstract

This research aims to analyze the dynamics of inflation from an innovative point of view, as an attempt to develop a better understanding for episodes of inflation acceleration and even more recent episodes of missing deflation puzzle and missing inflation puzzle. In these periods, the traditional trade-off between inflation and output seems to have disappeared. Even the most modern versions of the New-Keynesian Phillips Curve show difficulties in explaining them. In order to fill these gaps in the literature, and given the importance for monetary policy of the macroeconomic models with price rigidity to measure the real impacts of inflation in the economy, this research contemplates empirical estimates of the Phillips Curve following the work initiated by Ball et. al. (1988) and a more recent analysis from Miles et al. al. (2017) for several countries, periods and explanatory variables, analyzing the behavior of the trade-off parameter. One hypothesis to be tested is that, what may lie behind the puzzle, is the importance of relative price information as an anchor to prices. In this context, the internet revolution is essential. In the second part of the research, we intend to use the empirical results obtained in the first part to test the simultaneous adherence of the different models such as (Calvo (1983)), menu costs (Golosov and Lucas, 2007) and endogenous readjustment rules (Bonomo and Carvalho, 2004, 2010) to micro and macroeconomic data. (AU)