The Inflation Accelerator

Abstract

We develop a tractable sticky price model in which the fraction of price changes evolves endogenously over time and, consistent with the evidence, increases with inflation.Because we assume that firms sell multiple products and choose how many, but not which, prices to adjust in every period, our model admits exact aggregation and reduces to a one-equation extension of the Calvo model.The model features a powerful inflation accelerator-a feedback loop between inflation and the fraction of price changes -which significantly increases the slope of the Phillips curve during periods of high inflation.

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