This paper shows that plausible modifications to the Taylor rule for monetary policy can help explain several empirical anomalies to the behavior of inflation in the new-Keynesian general equilibrium model. The key anomalies considered are (1) the persistence of inflation, both in reduced form and after conditioning on inflation’s driving processes, (2) the positive correlation between the outp...

Empirical support for the long-run Fisher effect, a hypothesis that a permanent change in inflation leads to an equal change in the nominal interest rate, has been hard to come by. This paper provides a plausible explanation of why past studies have been unable to find support for the long-run Fisher effect. This paper argues that the necessary permanent change to the inflation rate following a...

Economists often comment that inflation will tend to increase (or decrease) if growth is higher or lower than the 'potential' growth rate of the the economy. After setting out a theoretical justification for such a relationship we estimate equations relating the change in inflation to growth rates for the US, Canada and Australia. Our system also allows for the possibility that traded goods pri...

This study attempts to estimate the rate of inflation in Pakistan by the stochastic approach to index numbers by allowing systematic changes in relative prices. This approach provides not only point estimate but also confidence interval for the rate of inflation. There are two types of approaches to index number theory namely: the functional economic approaches and the stochastic approach. The ...