Welfare implications of Calvo vs. Rotemberg pricing assumptions
AbstractThis paper compares the welfare implications of two widely used pricing assumptions in the New-Keynesian literature: Calvo-pricing vs. Rotemberg- pricing. We show that despite the strong similarities between the two assumptions to a first order of approximation, in general they might entail different welfare costs at higher order of approximation. In the special case of non-distorted steady state, the two pricing assumptions imply identical welfare losses to a second order of approximation. JEL Classification: E3, E5.
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 770.
Length: 18 pages
Date of creation: Jun 2007
Date of revision:
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Other versions of this item:
- Lombardo, Giovanni & Vestin, David, 2008. "Welfare implications of Calvo vs. Rotemberg-pricing assumptions," Economics Letters, Elsevier, vol. 100(2), pages 275-279, August.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-07 (All new papers)
- NEP-CBA-2007-07-07 (Central Banking)
- NEP-MAC-2007-07-07 (Macroeconomics)
- NEP-MIC-2007-07-07 (Microeconomics)
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