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Sticky-Price Models of the Business Cycle: Specification and Stability

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  • Peter N. Ireland

    ()
    (Boston College)

Abstract

This paper focuses on the specification and stability of a dynamic, stochastic, general equilibrium model of the business cycle with sticky prices. Maximum likelihood estimates reveal that the data prefer a version of the model in which adjustment costs apply to the price level but not to the inflation rate. Formal hypothesis tests provide evidence of instability in the estimated parameters, concentrated in the Euler equation linking consumption growth to the interest rate.

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File URL: http://fmwww.bc.edu/EC-P/wp426.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 426.

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Length: 36 pages
Date of creation: 28 Jul 1999
Date of revision:
Publication status: published in Journal of Monetary Economics, 2001, 47:1, 3-18.
Handle: RePEc:boc:bocoec:426

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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
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Keywords: Sticky prices; Business Cycles;

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