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Staggered price-setting, staggered wage-setting, and business cycle persistence Author info | Abstract | Publisher info | Download info | Related research | Statistics K. Huang
Z. Liu
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Staggered price-setting and staggered wage-setting are commonly viewed as similar mechanisms in generating persistent real effects of monetary shocks. In this paper, we distinguish the two mechanisms in a dynamic stochastic general equilibrium framework. We show that, although the dynamic price-setting and wage-setting equations are alike, a key parameter governing persistence is linked to the underlying preferences and technologies in different ways. Under staggered wage-setting, an intertemporal smoothing incentive in labor hours prevents the households from adjusting their wages too quickly in response to an aggregate demand shock, while such incentives are absent under staggered price-setting. With reasonable parameter values, the staggered price mechanism by itself is incapable of, while the staggered wage mechanism plays an important role in generating persistence.
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Paper provided by Utah State University, Department of Economics in its series Working Papers with number
2000-28.
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Length: 36 pages
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Handle: RePEc:usu:wpaper:2000-28Contact details of provider: Web page: http://www.econ.usu.edu/ More information through EDIRC
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Keywords: staggered contracts business cycle persistence monetary policy Other versions of this item:
Article Huang, Kevin X. D. & Liu, Zheng, 2002.
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