Sticky price models of the business cycle: Can the roundabout production solve the persistence puzzle?

This paper considers the persistence puzzle unveiled by Chari et al. (2000). Our findings show that endogenously persistent output dynamics are not a puzzle for the standard sticky-price model once roundabout production is taken into account. We make this point using a new-Keynesian framework emphasizing an inertial mechanism called the multiplier for price stickiness in the spirit of Basu (1995).