Inflation Persistence Unveiled: How Trend Inflation Shapes Economic Stability
The article presents a new theory explaining why inflation tends to stick around for a while. By looking at how prices and wages are set in the economy, the researchers found that past inflation affects current prices, creating a kind of built-in inertia in the system. This means that even if the government tries to lower inflation, it can take some time for prices to actually start going down. The study also shows that having lower overall inflation makes it easier to reduce inflation in the future.