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Generalized Taylor and Generalized Calvo price and wage-setting: micro evidence with macro implications

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  • Dixon, H.
  • Le Bihan, H.

Abstract

The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counterparts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 324.

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Length: 38 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:bfr:banfra:324

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Keywords: Contract length; steady state; hazard rate; Calvo; Taylor; wage-setting; price-setting.;

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References

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  2. Kara, Engin, 2010. "Optimal monetary policy in the generalized Taylor economy," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2023-2037, October.
  3. Fougère, D. & Le Bihan, H. & Sevestre, P., 2005. "Heterogeneity in Consumer Price Stickiness: A Microeconometric Investigation," Working papers 137, Banque de France.
  4. Dixon, Huw & Kara, Engin, 2011. "Contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized Taylor economy," European Economic Review, Elsevier, vol. 55(2), pages 280-292, February.
  5. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  6. Ascari, Guido, 2002. "Staggered Price and Trend Inflation:Some Nuisances," Royal Economic Society Annual Conference 2002 10, Royal Economic Society.
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  15. Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2007. "What do Thirteen Million Price Records have to Say about Consumer Price Rigidity?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 139-183, 04.
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  19. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics 0509017, EconWPA, revised 12 Sep 2005.
  20. Dixon, Huw David, 2009. "A unified framework for understanding and comparing dynamic wage and price setting models," Cardiff Economics Working Papers E2009/20, Cardiff University, Cardiff Business School, Economics Section.
  21. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
  22. de Walque, Gregory & Smets, Frank & Wouters, Rafael, 2006. "Firm-Specific Production Factors in a DSGE Model with Taylor Price Setting," MPRA Paper 810, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Dixon, Huw & Seaton, Jonathan & Waterson, Michael, 2014. "Price Flexibility In British Supermarkets: Moderation And Recession," The Warwick Economics Research Paper Series (TWERPS) 1041, University of Warwick, Department of Economics.
  2. Huw Dixon & Engin Kara, 2011. "Taking Multi-Sector Dynamic General Equilibrium Models to the Data," Bristol Economics Discussion Papers 11/621, Department of Economics, University of Bristol, UK.
  3. Millard, Stephen & O'Grady, Tom, 2012. "What do sticky and flexible prices tell us?," Bank of England working papers 457, Bank of England.
  4. 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.
  5. Dixon, Huw & Franklin, Jeremy & Millard, Stephen, 2014. "Sectoral shocks and monetary policy in the United Kingdom," Bank of England working papers 499, Bank of England.

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