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Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts

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  • Huw Dixon
  • Engin Kara

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 tracts the US 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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File URL: ftp://ftp.bham.ac.uk/pub/RePEc/pdf/EKara.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 07-01.

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Length: 40 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:bir:birmec:07-01

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Keywords: Persistence; Taylor contract; Calvo;

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  1. 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.
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  3. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics 0509017, EconWPA, revised 12 Sep 2005.
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  7. Huw Dixon, . "Macroeconomic Price and Quantity Responses with Heterogeneous Product Markets," Discussion Papers 93/4, Department of Economics, University of York.
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  25. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
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