Intrinsic inflationpersistence

Empiricalevidencesuggeststhatinflationdeterminationisnotpurelyforward-looking, but modelsofpricesettinghavestruggledtorationalizethisfindingwithoutdirectly assumingbackward-lookingpricingrulesforfirms.Thispapershowsthatintrinsicinflation persistence canbeexplainedwithnodeviation from optimizing,forward-lookingbehaviour if pricesthathaveremainedfixedforlongeraremorelikelytobechangedthanthoseset recently. Arelationshipbetweentheprobabilityofpriceadjustmentandthedurationofa price spellisshowntoimplyasimple‘‘hybrid’’Phillipscurveincludinglaggedandexpected inflation,whichisestimatedusingmacroeconomicdata