Partial Adjustment and Staggered Price Setting
By Michael T. Kiley. 2002
129 citations recorded by the source corpus.
This paper compares Taylor-style staggered price setting to partial adjustment of prices (or Calvo staggering) in a small optimizing IS/LM model. In contrast to the overwhelming perception in the literature, the models are not similar for most parameterizations. In particular, the dynamic response of the economy to shocks is quite different in the two models, and the welfare cost of price rigidity is eight or more times larger in the Calvo model than in the Taylor model (for typical calibrations). Suggestions for calibrations under which the models are more similar are also presented.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/643aff8583af34ed14039623fba75be59696b700
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In Economics and Econometrics
- Hervé le Bihan
- Nicoletta Batini
- Eric Jondeau
- Stephen P Millard
- André Kurmann
- R. Harrison
- Michael Woodford
- J. Danthine
Citations in the corpus
- Monetary Policy Rules for an Open Economy (2003, result): “However, the results that we derive may be sensitive to this assumption as other (similar) specifications of price stickiness can lead to quite different inflation dynamics (see Kiley (1999) and Wolman (1999) for details).”
- Information-Constrained State-Dependent Pricing (2008, result): “In addition to the results for this value of θ, I also present numerical results for a variety of other values of θ, listed in Table 1, including values both larger and smaller than the baseline value.(21) Because the assumption of a finite positive cost θ of interim information is the main novelty ”
- Fair Wages in a New Keynesian Model of the Business Cycle (2002, background): “Recent work by Kiley (2002) and Wolman (1999) suggests th price dynamics implied by a DSGE model with more realistic adjustment processes may differ substantia a DSGE model with Calvo pricing.”
- Testing for a Forward-Looking Phillips Curve: Additional Evidence from European and US Data (2001, methodology): “Taking the average of equation (24) at time t and equation (24) at time t−1, and using equation (20), we can state this equation in terms of inflation:”