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

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  • Dixon, Huw
  • Kara, Engin

Abstract

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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  • Dixon, Huw & Kara, Engin, 2011. "Contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized Taylor economy," European Economic Review, Elsevier, vol. 55(2), pages 280-292, February.
  • Handle: RePEc:eee:eecrev:v:55:y:2011:i:2:p:280-292
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    Cited by:

    1. Engin Kara, 2012. "Using Micro Data on Prices to Improve Business Cycle Models," Bristol Economics Discussion Papers 12/632, Department of Economics, University of Bristol, UK.
    2. Engin Kara, 2011. "Understanding and Modelling Reset Price Inflation," Bristol Economics Discussion Papers 11/623, Department of Economics, University of Bristol, UK.
    3. Huw David Dixon & Kun Tian, 2017. "What We can Learn About the Behaviour of Firms from the Average Monthly Frequency of Price-Changes: An Application to the UK CPI Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 907-932, December.
    4. Huw Dixon & Hervé Le Bihan, 2012. "Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications," Economic Journal, Royal Economic Society, vol. 122(560), pages 532-554, May.
    5. Jósef Sigurdsson & Rannveig Sigurdardottir, 2011. "Evidence of Nominal Wage Rigidity and Wage Setting from Icelandic Microdata," Economics wp55, Department of Economics, Central bank of Iceland.
    6. Sigurdsson, Jósef & Sigurdardottir, Rannveig, 2016. "Time-dependent or state-dependent wage-setting? Evidence from periods of macroeconomic instability," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 50-66.
    7. Taylor, J.B., 2016. "The Staying Power of Staggered Wage and Price Setting Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    8. Madeira, João, 2015. "Firm-specific capital, inflation persistence and the sources of business cycles," European Economic Review, Elsevier, vol. 74(C), pages 229-243.
    9. Huw Dixon & Engin Kara, 2011. "Taking Multi-Sector Dynamic General Equilibrium Models to the Data," Koç University-TUSIAD Economic Research Forum Working Papers 1125, Koc University-TUSIAD Economic Research Forum.
    10. Bouakez, Hafedh & Cardia, Emanuela & Ruge-Murcia, Francisco, 2014. "Sectoral price rigidity and aggregate dynamics," European Economic Review, Elsevier, vol. 65(C), pages 1-22.
    11. Alvarez, Fernando & Lippi, Francesco & Paciello, Luigi, 2012. "Monetary Shocks in a Model with Inattentive Producers," CEPR Discussion Papers 9228, C.E.P.R. Discussion Papers.
    12. Carlos Viana de Carvalho & Niels Arne Dam & Jae Won Lee, 2014. "Real Rigidities and the Cross-Sectional Distribution of Price Stickiness: Evidence from Micro and Macro Data Combined," Textos para discussão 634, Department of Economics PUC-Rio (Brazil).
    13. Alessandro Flamini, 2011. "Price Stickiness Asymmetry, Persistence and Volatility in a New Keynesian Model," Working Papers 2011013, The University of Sheffield, Department of Economics, revised May 2011.

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    Keywords

    Persistence Taylor contract Calvo;

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