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A Unified Framework for Using Micro-Data to Compare Dynamic Wage and Price Setting Models

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  • Huw D. Dixon

Abstract

This paper develops a statistical framework of steady-state identities which enable us to match the distributions of durations found in the micro-data to generalized Taylor and Calvo models of time-dependent pricing. We illustrate the approach with the UK micro CPI data for 2006-2009, and employ the pricing models in a simple macromodel. We find that the Generalized Taylor Economy generates a hump shaped response function, whilst the Generalized Calvo does not.

Suggested Citation

  • Huw D. Dixon, 2010. "A Unified Framework for Using Micro-Data to Compare Dynamic Wage and Price Setting Models," CESifo Working Paper Series 3093, CESifo.
    • Handle: RePEc:ces:ceswps:_3093
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    References listed on IDEAS

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    7. Engin Kara & Huw Dixon, 2005. "Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts," Computing in Economics and Finance 2005 87, Society for Computational Economics.
    8. 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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    13. Guerrieri, Luca, 2006. "The Inflation Persistence of Staggered Contracts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 483-494, March.
    14. Huw Dixon & Engin Kara, 2010. "Can We Explain Inflation Persistence in a Way that Is Consistent with the Microevidence on Nominal Rigidity?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 151-170, February.
    15. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    16. Alvarez González, Luis Julián, 2008. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-36.
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    19. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
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    2. Millard, Stephen & O'Grady, Tom, 2012. "What do sticky and flexible prices tell us?," Bank of England working papers 457, Bank of England.

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    More about this item

    Keywords

    price-spell; steady state; hazard rate; Calvo; Taylor;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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