Inflation dynamics influenced by time-dependent pricing, impacting economic stability.
The article explores how assuming price adjustment is not a constant process can impact economic models. By incorporating memory into the Phillips curve, the researchers found that lagged inflation always has negative coefficients, affecting inflation persistence. Introducing trend inflation strengthens the effects of increasing hazard function on inflation dynamics. The model can explain persistent inflation and output dynamics, hump-shaped responses of inflation to monetary shocks, and how high trend inflation leads to more inflation persistence.