## Inflation Persistence, Backward-Looking Firms, and Monetary Policy in an Input-Output EconomyThis paper studies the implications of inflation persistence (generated by backward-looking price setters) for monetary policy in a New Keynesian "input-output" model -- a model with sticky prices in both intermediate and final goods sectors. Optimal policy under commitment depends on the degree of inflation persistence in both sectors. Under discretion, speed-limit targeting -- targeting the change in the output gap -- outperforms price-level and inflation targeting in the presence of inflation persistence. If inflation persistence is low in the intermediate goods sector, price-level targeting outperforms in inflation targeting despite high inflation persistence in the final goods sector. Illus. This is a print on demand edition of an important, hard-to-find publication. |

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a¤ected assume assumption that shocks backward-looking price setters backward-looking rms central bank acts central bank’s maximal central bank’s responses coe¢cient cost-push shocks crafting the loss degrees of in‡ation e¤ect elasticity of substitution forward-looking model Galí and Gertler household loss function Huang and Liu incorrect assumptions input-output economy input-output model intermediate and nal intermediate goods sector Keynesian models log-deviation loss function based magnitude marginal cost gap monetary policy nal goods Phillips nal goods rms nal goods sector nominal interest rate one-sector model output gap percentage of backward-looking period loss function persistence is high policy under commitment price-level targeting performs productivity shocks Purely Forward-Looking real interest rate real marginal cost regime that performs sector but low sectoral Phillips curves setting f shocks hit sources of shocks speed-limit targeting performs steady-state Steinsson 2003 sticky prices Strum targeting performs best technology factor Technology shocks type of regime