Abstract
Let me begin with a summary of this interesting paper, before giving some comments. The paper builds on Sbordone’s earlier work with Tim Cogley (Cogley and Sbordone, 2005, 2006—referenced as CS hereafter). In that work, CS developed a macro-model with a time-varying inflation trend. As in a familiar version of Calvo pricing with indexing, CS assumed that firms that do not reoptimize partially index to the previous period’s inflation rate. It is standard to log linearize around a zero steady-state inflation rate. This would lead to a linear equation with a lag of inflation in the Phillips curve (see, e.g., Woodford, 2003):
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