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On the stability of Calvo-style price-setting behavior

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  • Lhuissier, Stéphane
  • Zabelina, Margarita

Abstract

An increasing literature has been concerned that the dynamics of the economy keeps switching and that, in particular, it is important to allow time variation in the degree of Calvo stickiness. We investigate this with a Markov-switching Dynamic Stochastic General Equilibrium model and show that there is little gain when allowing for such time variation. As a result we recommend to use a constant Calvo stickiness parameter, even when allowing for regime shifts elsewhere.

Suggested Citation

  • Lhuissier, Stéphane & Zabelina, Margarita, 2015. "On the stability of Calvo-style price-setting behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 77-95.
  • Handle: RePEc:eee:dyncon:v:57:y:2015:i:c:p:77-95
    DOI: 10.1016/j.jedc.2015.05.002
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    Cited by:

    1. Stéphane Lhuissier & Fabien Tripier, 2016. "Do Uncertainty Shocks Always Matter for Business Cycles?," Working Papers 2016-19, CEPII research center.
    2. repec:eee:eecrev:v:98:y:2017:i:c:p:49-72 is not listed on IDEAS
    3. Stéphane Lhuissier, 2015. "The Regime-switching volatility of Euro Area Business Cycles," Working Papers 2015-22, CEPII research center.

    More about this item

    Keywords

    Markov-switching; Policy-invariant; Nominal rigidities; Monetary policy; Bayesian method; DSGE models;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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