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Assessing sticky price models using the Burns and Mitchell approach

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Author Info
Juan Paez-Farrell

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Abstract

This article evaluates sticky-price models using the methods proposed by Burns and Mitchell, focusing on the monetary aspects of the business cycle. Recent research has emphasized the responses of models to shocks at the expense of its systematic component. Whereas sticky-price models have been successful at replicating impulse response functions from vector autoregressions, this article highlights that they are unable to mimic the data for nominal variables. Moreover, the results are robust to the specification of the Phillips curve, including its backward-looking variant, calibrated values and the inclusion of fiscal policy shocks. Since being able to mimic the data is the lowest hurdle a Model must pass, these results pose a challenge for sticky price models.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 40 (2008)
Issue (Month): 11 ()
Pages: 1387-1397
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Handle: RePEc:taf:applec:v:40:y:2008:i:11:p:1387-1397

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  2. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," RCER Working Papers 467, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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  3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  4. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March. [Downloadable!] (restricted)
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  5. Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 23-27. [Downloadable!]
  6. Bennett T. McCallum, 1997. "Issues in the Design of Monetary Policy Rules," NBER Working Papers 6016, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Millard, Stephen & Scott, Andrew & Sensier, Marianne, 1997. "The Labour Market over the Business Cycle: Can Theory Fit the Facts?," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 70-92, Autumn.
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  8. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  9. King, Robert G. & Plosser, Charles I., 1994. "Real business cycles and the test of the Adelmans," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 405-438, April. [Downloadable!] (restricted)
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  10. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2005. "Price- and wage- inflation targeting: variations on a theme by Erceg, Henderson, and Levin," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 181-215. [Downloadable!]
  11. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond. [Downloadable!]
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