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

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  • Dixon, Huw David

    ()
    (Cardiff Business School)

  • Bihan, Hervé Le

Abstract

The Generalized Calvo and the Generalized Taylor models 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 humpshaped and persistent response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2011/25.

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Length: 38 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:cdf:wpaper:2011/25

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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. Ascari, G., 1997. "Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," The Warwick Economics Research Paper Series (TWERPS) 486, University of Warwick, Department of Economics.
  3. Dixon, Huw David & Kara, Engin, 2008. "Can we explain inflation persistence in a way that is consistent with the micro-evidence on nominal rigidity?," Cardiff Economics Working Papers E2008/22, Cardiff University, Cardiff Business School, Economics Section.
  4. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
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  6. 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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  9. 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.
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  15. Huw Dixon & Engin Kara, . "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Discussion Papers 05/04, Department of Economics, University of York.
  16. Luca Guerrieri, 2002. "The inflation persistence of staggered contracts," International Finance Discussion Papers 734, Board of Governors of the Federal Reserve System (U.S.).
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  22. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics 0509017, EconWPA, revised 12 Sep 2005.
  23. 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.
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  25. Alexander L. Wolman, 1999. "Sticky prices, marginal cost, and the behavior of inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 29-48.
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Citations

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Cited by:
  1. 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.
  2. 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.
  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. 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.
  5. 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.

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