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Monetary Persistence, Imperfect Competition, And Staggering Complementarities

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  • Merkl, Christian
  • Snower, Dennis

Abstract

This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are complementary in generating monetary persistence. We do so by proposing the new measure of "quantitative inertia," after discussing weaknesses of the "contract multiplier," a standard measure of monetary persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to investigate their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labor and product markets. We show that the conventional finding that wage staggering generates more persistence than price staggering holds under homogenous capital accumulation. Under firm-specific capital, wage staggering generates more persistence only when the labor market is sufficiently competitive relative to the product market.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 13 (2009)
Issue (Month): 01 (February)
Pages: 81-106

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Handle: RePEc:cup:macdyn:v:13:y:2009:i:01:p:81-106_07

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Citations

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Cited by:
  1. Marika Karanassou & Hector Sala & Dennis J. Snower, 2007. "The Evolution of Inflation and Unemployment: Explaining the Roaring Nineties," Kiel Working Papers 1350, Kiel Institute for the World Economy.
  2. Wolfgang Lechthaler & Christian Merkl & Dennis Snower, 2010. "Monetary Persistence and the Labor Market: A New Perspective," CESifo Working Paper Series 2935, CESifo Group Munich.
  3. Auray, Stephane & de Blas, Beatriz, 2011. "Investment, Matching and Persistence in a modified Cash-in-Advance Economy," Working Papers in Economic Theory 2011/10, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  4. Marika Karanassou & Hector Sala & Dennis J. Snower, 2006. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," Working Papers 573, Queen Mary, University of London, School of Economics and Finance.
  5. Merkl, Christian & Snower, Dennis, 2009. "Monetary Persistence, Imperfect Competition, And Staggering Complementarities," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 81-106, February.
  6. Wohltmann, Hans-Werner & Winkler, Roland C., 2009. "Rational expectations models with anticipated shocks and optimal policy: a general solution method and a new Keynesian example," Economics Working Papers 2009,01, Christian-Albrechts-University of Kiel, Department of Economics.
  7. Hans-Werner Wohltmann & Roland Winkler, 2009. "On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model," Kiel Working Papers 1497, Kiel Institute for the World Economy.

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