The Output-Inflation Trade-off When Prices Are Costly to Change

  title={The Output-Inflation Trade-off When Prices Are Costly to Change},
  author={Michael Parkin},
  journal={Journal of Political Economy},
  pages={200 - 224}
  • M. Parkin
  • Published 1 February 1986
  • Economics
  • Journal of Political Economy
The output-inflation trade-off is investigated in a rational expectations equilibrium economy in which costly price setting makes it inefficient for agents to vary their prices at every instant. It is shown that "sticky prices" are not some exogenous source of output fluctuation but result from the monetary policy process. An economy with slow and counterinflationary money growth exhibits staggered changes in sticky prices as assumed in some "new-Keynesian" analyses. An economy with fast money… Expand
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