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Contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized Taylor economy

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  • Dixon, Huw
  • Kara, Engin

Abstract

We develop the generalized Taylor economy (GTE) in which there are many sectors with overlapping contracts of different lengths. In economies with the same average contract length, monetary shocks will be more persistent when longer contracts are present. Using the Bils-Klenow distribution of contract lengths, we find that the corresponding GTE tracks the U.S. data well. When we choose a GTE with the same distribution of completed contract lengths as the Calvo, the economies behave in a similar manner.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 55 (2011)
Issue (Month): 2 (February)
Pages: 280-292

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Handle: RePEc:eee:eecrev:v:55:y:2011:i:2:p:280-292

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Persistence Taylor contract Calvo;

References

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  7. Dixon, Huw & Kara, Engin, 2006. "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1119-1126, June.
  8. Kara, Engin, 2006. "Optimal monetary policy in the generalized Taylor economy," Working Paper Series 0673, European Central Bank.
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Citations

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Cited by:
  1. Jósef Sigurdsson & Rannveig Sigurdardottir, 2011. "Evidence of Nominal Wage Rigidity and Wage Setting from Icelandic Microdata," Economics wp55, Department of Economics, Central bank of Iceland.
  2. Engin Kara, 2011. "Understanding and Modelling Reset Price Inflation," Bristol Economics Discussion Papers 11/623, Department of Economics, University of Bristol, UK.
  3. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2009. "Sectoral Price Rigidity and Aggregate Dynamics," Cahiers de recherche 01-2009, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Huw Dixon & Hervé Le Bihan, 2012. "Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications," Economic Journal, Royal Economic Society, vol. 122(560), pages 532-554, 05.
  5. Alessandro Flamini & Guido Ascari & Lorenza Rossi, 2012. "Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation," DEM Working Papers Series 025, University of Pavia, Department of Economics and Management.
  6. Dixon, Huw & Kara, Engin, 2012. "Taking Multi-Sector Dynamic General Equilibrium Models to the Data," Cardiff Economics Working Papers E2012/8, Cardiff University, Cardiff Business School, Economics Section.
  7. Engin Kara, 2012. "Using Micro Data on Prices to Improve Business Cycle Models," Bristol Economics Discussion Papers 12/632, Department of Economics, University of Bristol, UK.

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