IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/v8y2008i1n31.html
   My bibliography  Save this article

On Equilibrium Determinacy in New Keynesian Models with Staggered Wage and Price Setting

Author

Listed:
  • Flaschel Peter

    (Bielefeld University)

  • Franke Reiner

    (Christian-Albrechts-University in Kiel)

  • Proaño Christian R.

    (Macroeconomic Policy Institute (IMK))

Abstract

This paper shows that an analytical analysis of the determinacy properties of the New Keynesian model with both staggered wages and prices is possible, despite the high dimensional nature (4D) of this model, if it is appropriately reformulated in continuous time. Our analysis supports Galí's (2008) numerical findings on the determinacy frontier and its reformulated Taylor principle, where a generalized Taylor rule that employs a weighted combination of wage and price inflation as a measure of the inflation gap is used.

Suggested Citation

  • Flaschel Peter & Franke Reiner & Proaño Christian R., 2008. "On Equilibrium Determinacy in New Keynesian Models with Staggered Wage and Price Setting," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-12, December.
    • Handle: RePEc:bpj:bejmac:v:8:y:2008:i:1:n:31
    DOI: 10.2202/1935-1690.1802
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1935-1690.1802
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1935-1690.1802?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Aadland, David & Huang, Kevin X. D., 2004. "Consistent high-frequency calibration," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2277-2295, October.
    2. Hintermaier, Thomas, 2005. "A sunspot paradox," Economics Letters, Elsevier, vol. 87(2), pages 285-290, May.
    3. Foley, Duncan K, 1975. "On Two Specifications of Asset Equilibrium in Macroeconomic Models," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 303-324, April.
    4. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ascari, Guido & Colciago, Andrea & Rossi, Lorenza, 2017. "Determinacy analysis in high order dynamic systems: The case of nominal rigidities and limited asset market participation," Economics Letters, Elsevier, vol. 159(C), pages 82-87.
    2. Sacht, Stephen, 2014. "Analysis of Various Shocks within the High-Frequency Versions of the Baseline New-Keynesian Model," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100372, Verein für Socialpolitik / German Economic Association.
    3. Araújo, Eurilton, 2016. "Determinacy and learnability of equilibrium in a small-open economy with sticky wages and prices," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 16-32.
    4. Zhao, Junzhu, 2023. "Wealth in utility, the Taylor principle and determinacy," Journal of Macroeconomics, Elsevier, vol. 76(C).
    5. Christian Proaño, 2009. "(De-)Stabilizing two-country macroeconomic interactions in an estimated model of the U.S. and the Euro Area," International Economics and Economic Policy, Springer, vol. 6(4), pages 421-443, December.
    6. Traum, Nora & Yang, Shu-Chun S., 2011. "Monetary and fiscal policy interactions in the post-war U.S," European Economic Review, Elsevier, vol. 55(1), pages 140-164, January.
    7. Steffen Ahrens & Stephen Sacht, 2014. "Estimating a high-frequency New-Keynesian Phillips curve," Empirical Economics, Springer, vol. 46(2), pages 607-628, March.
    8. Bask, Mikael & Proaño, Christian R., 2016. "Optimal monetary policy under learning and structural uncertainty in a New Keynesian model with a cost channel and inflation inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 112-126.
    9. Best, Gabriela, 2015. "A New Keynesian model with staggered price and wage setting under learning," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 96-111.
    10. Guido Ascari & Andrea Colciago & Lorenza Rossi, 2017. "Limited Asset Market Participation, Sticky Wages, And Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 878-897, April.
    11. Christian R. Proaño & Peter Flaschel & Hans-Martin Krolzig & Mamadou Bobo Diallo, 2011. "Monetary policy and macroeconomic stability under alternative demand regimes," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 35(3), pages 569-585.
    12. Gaetano Lisi, 2021. "Can the AD-AS Model Explain the Presence and Persistence of the Underground Economy? Evidence from Italy," Economies, MDPI, vol. 9(4), pages 1-11, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Reiner Franke & Stephen Sacht, 2014. "Some Observations On The High-Frequency Versions Of A Standard New-Keynesian Model," Bulletin of Economic Research, Wiley Blackwell, vol. 66(1), pages 72-94, January.
    2. Chryssi Giannitsarou & Alexia Anagnostopoulos, 2005. "Modeling Time and Macroeconomic Dynamics," Money Macro and Finance (MMF) Research Group Conference 2005 60, Money Macro and Finance Research Group.
    3. Hintermaier, Thomas, 2005. "A sunspot paradox," Economics Letters, Elsevier, vol. 87(2), pages 285-290, May.
    4. Franke, Reiner & Flaschel, Peter, 2008. "A Proof of Determinacy in the New-Keynesian Sticky Wages and Prices Model," Economics Working Papers 2008-14, Christian-Albrechts-University of Kiel, Department of Economics.
    5. Christian R. Proano, 2009. "Heterogenous Behavioral Expectations, FX Fluctuations and Dynamic Stability in a Stylized Two-Country Macroeconomic Model," IMK Working Paper 03-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Sacht, Stephen, 2014. "Analysis of various shocks within the high-frequency versions of the baseline New-Keynesian model," Economics Working Papers 2014-02, Christian-Albrechts-University of Kiel, Department of Economics.
    7. Ben Aissa, Mohamed Safouane & Musy, Olivier & Pereau, Jean-Christophe, 2007. "Modelling inflation persistence with periodicity changes in fixed and predetermined prices models," Economic Modelling, Elsevier, vol. 24(5), pages 823-838, September.
    8. Jose Carreno, 2020. "Housing Booms and the U.S. Productivity Puzzle," Working Papers 20-4, Center for Economic Studies, U.S. Census Bureau.
    9. Thomas Lubik, 2003. "Investment Spending,Equilibrium Indeterminacy and the Interactions of Monetary and Fiscal Policy," Economics Working Paper Archive 490, The Johns Hopkins University,Department of Economics.
    10. Sveen, Tommy, 2014. "Capital accumulation, sectoral heterogeneity and the Taylor principle," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 20-28.
    11. Pablo Burriel & Jesús Fernández-Villaverde & Juan Rubio-Ramírez, 2010. "MEDEA: a DSGE model for the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 175-243, March.
    12. Vitek, Francis, 2006. "Measuring the Stance of Monetary Policy in a Small Open Economy: A Dynamic Stochastic General Equilibrium Approach," MPRA Paper 802, University Library of Munich, Germany.
    13. Christoph Görtz & John D. Tsoukalas, 2013. "Sector Specific News Shocks in Aggregate and Sectoral Fluctuations," CESifo Working Paper Series 4269, CESifo.
    14. Federico Di Pace & Matthias Hertweck, 2019. "Labor Market Frictions, Monetary Policy, and Durable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 274-304, April.
    15. Donald L. Kohn, 2008. "Lessons for central bankers from a Phillips curve framework," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    16. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2005. "Price- and wage- inflation targeting: variations on a theme by Erceg, Henderson, and Levin," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 181-215.
    17. Shigeru Fujita, 2011. "Dynamics of worker flows and vacancies: evidence from the sign restriction approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(1), pages 89-121, January/F.
    18. Christopher Erceg & Christopher Gust & David López-Salido, 2007. "The Transmission of Domestic Shocks in Open Economies," NBER Chapters, in: International Dimensions of Monetary Policy, pages 89-148, National Bureau of Economic Research, Inc.
    19. Alexander Mihailov & Giovanni Razzu & Zhe Wang, 2019. "Heterogeneous effects of single monetary policy on unemployment rates in the largest EMU economies," Economics Discussion Papers em-dp2019-07, Department of Economics, University of Reading.
    20. David Amirault & Paul Fenton & Thérèse Laflèche, 2013. "Asking About Wages: Results from the Bank of Canada’s Wage Setting Survey of Canadian Companies," Discussion Papers 13-1, Bank of Canada.

    More about this item

    Keywords

    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:8:y:2008:i:1:n:31. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.