The real effects of inflation in continuous versus discrete time sticky price models
AbstractWe demonstrate the important implications of the assumptions of discrete time in many sticky price models of the macroeconomy. For a given level of menu costs, discrete time models imply longer average contract length but smaller real effects of both trend inflation and monetary shocks than continuous time models. It is also feasible for a firm to enjoy full price flexibility in discrete time, while this would require paying infinite menu costs in continuous time, a distinction that is most important at high levels of trend inflation. Copyright © 2007 John Wiley & Sons, Ltd.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.
Volume (Year): 28 (2007)
Issue (Month): 6 ()
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Devereux, Michael B. & Yetman, James, 2002. "Menu costs and the long-run output-inflation trade-off," Economics Letters, Elsevier, vol. 76(1), pages 95-100, June.
- Levy, Daniel, 2007.
"Price Rigidity and Flexibility: Recent Theoretical Developments,"
2761, University Library of Munich, Germany.
- Daniel Levy, 2007. "Price rigidity and flexibility: recent theoretical developments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 523-530.
- Daniel Levy, 2006. "Price Rigidity and Flexibility: Recent Theoretical Developments," Emory Economics 0608, Department of Economics, Emory University (Atlanta).
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