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Contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized Taylor economy

  • Dixon, Huw
  • Kara, Engin

We develop the generalized Taylor economy (GTE) in which there are many sectors with overlapping contracts of different lengths. In economies with the same average contract length, monetary shocks will be more persistent when longer contracts are present. Using the Bils-Klenow distribution of contract lengths, we find that the corresponding GTE tracks the U.S. data well. When we choose a GTE with the same distribution of completed contract lengths as the Calvo, the economies behave in a similar manner.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 55 (2011)
Issue (Month): 2 (February)
Pages: 280-292

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Handle: RePEc:eee:eecrev:v:55:y:2011:i:2:p:280-292
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