Predetermined Prices and the Persistent Effects of Money on Output
This paper illustrates a model of predetermined pricing, where firms set a fixed schedule of nominal prices at the time of price readjustment, based on the work of Fischer (1977). This type of price-setting specification cannot produce any excess persistence in a fixed-duration model of staggered prices, but we show that with a probabilistic model of price adjustment, as in Calvo (1983), a predetermined pricing specification can produce excess persistence. Moreover, in response to a money shock, the aggregate dynamics are very similar to those under a specification of fixed prices, the assumption underlying most recent dynamic sticky-price models.
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- Jeanne, Olivier, 1998.
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- Kiley, Michael T, 2002. "Partial Adjustment and Staggered Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 283-298, May.
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