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The Dynamic Properties Of Alternative Assumptions On Price Adjustment In New Keynesian Models

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  • Mohamed Safouane Ben Aïssa
  • Olivier Musy

Abstract

This paper presents a classification of the different new Phillips curves existing in the literature as a set of choices based on three assumptions: the choice of the structure of price adjustments (Calvo or Taylor), the presence of backward indexation, and the type of price contracts (fixed prices or predetermined prices). The paper suggests study of the dynamic properties of each specification, following different monetary shocks on the growth rate of the money stock. We develop the analytical form of the price dynamics, and we display graphics for the responses of prices, output, and inflation. We show that the choice made for each of the three assumptions has a strong influence on the dynamic properties. Notably, the choice of the price structure, while often considered as unimportant, is indeed the most influential choice concerning the dynamic responses of output and inflation.
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Suggested Citation

  • Mohamed Safouane Ben Aïssa & Olivier Musy, 2011. "The Dynamic Properties Of Alternative Assumptions On Price Adjustment In New Keynesian Models," Bulletin of Economic Research, Wiley Blackwell, vol. 63(4), pages 353-384, October.
  • Handle: RePEc:bla:buecrs:v:63:y:2011:i:4:p:353-384
    DOI: j.1467-8586.2009.00349.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-8586.2009.00349.x
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    Cited by:

    1. Taylor, J.B., 2016. "The Staying Power of Staggered Wage and Price Setting Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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