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Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications

  • Huw Dixon
  • Hervé Le Bihan

The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counterparts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation.

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File URL: http://hdl.handle.net/10.1111/j.1468-0297.2012.02497.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 122 (2012)
Issue (Month): 560 (05)
Pages: 532-554

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Handle: RePEc:ecj:econjl:v:122:y:2012:i:560:p:532-554
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  25. Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2007. "What do Thirteen Million Price Records have to Say about Consumer Price Rigidity?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 139-183, 04.
  26. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
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