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The distribution of contract durations across firms - a unified framework for understanding and comparing dynamic wage and price setting models

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Author Info
Huw Dixon () (Economics Department, University of York, YO10 5DD, UK.)

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Abstract

This paper shows how any steady state distribution of ages and related hazard rates can be represented as a distribution across firms of completed contract lengths. The distribution is consistent with a Generalised Taylor Economy or a Generalised Calvo model with duration dependent reset probabilities. Equivalent distributions have different degrees of forward lookingness and imply different behaviour in response to monetary shocks. We also interpret data on the proportions of firms changing price in a period, and the resultant range of average contract lengths. JEL Classification: E50.

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Paper provided by European Central Bank in its series Working Paper Series with number 676.

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Length: 55 pages
Date of creation: Sep 2006
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Handle: RePEc:ecb:ecbwps:20060676

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Keywords: Contract length; steady state; hazard rate; Calvo; Taylor.;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael T. Kiley, 1999. "Partial adjustment and staggered price setting," Finance and Economics Discussion Series 1999-01, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  2. Christopher J. Erceg, 1997. "Nominal wage rigidities and the propagation of monetary disturbances," International Finance Discussion Papers 590, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. 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. [Downloadable!] (restricted)
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  4. Giovanni Veronese & Silvia Fabiani & Roberto Sabbatini, 2005. "Consumer price behaviour in Italy - evidence from micro CPI data," Working Paper Series 449, European Central Bank. [Downloadable!]
  5. Eyal Baharad & Benjamin Eden, 2003. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Working Papers 0321, Department of Economics, Vanderbilt University. [Downloadable!]
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  6. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-86, July. [Downloadable!] (restricted)
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  7. Luca Guerrieri, 2002. "The inflation persistence of staggered contracts," International Finance Discussion Papers 734, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2004. "Price rigidity. Evidence from the French CPI micro-data," Working Paper Series 384, European Central Bank. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Huw Dixon & Engin Kara, 2007. "Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts," Discussion Papers 07-01, Department of Economics, University of Birmingham. [Downloadable!]
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  2. Gaurav Saroliya, 2007. "The New Keynesian Business Cycle Achievements and Challenges," Discussion Papers 07/20, Department of Economics, University of York. [Downloadable!]
  3. Dixon, Huw & Kara, Engin, 2007. "Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts," Cardiff Economics Working Papers E2007/1, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
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