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Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts

  • Huw Dixon
  • Engin Kara

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 tracts the US 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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Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 07-01.

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Length: 40 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:bir:birmec:07-01
Contact details of provider: Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk

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  12. Huw Dixon, 2007. "The distribution of contract durations across firms: a unified framework for understanding and comparing dynamic wage and price setting models," Money Macro and Finance (MMF) Research Group Conference 2006 148, Money Macro and Finance Research Group.
  13. Ascari, G., 1997. "Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," The Warwick Economics Research Paper Series (TWERPS) 486, University of Warwick, Department of Economics.
  14. Dixon, Huw & Kara, Engin, 2006. "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1119-1126, June.
  15. Erceg, Christopher J. & Levin, Andrew T., 2002. "Optimal monetary policy with durable and non-durable goods," Working Paper Series 0179, European Central Bank.
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  17. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
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  24. Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October.
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  27. Kevin X. D. Huang & Zheng Liu & Louis Phaneuf, 2003. "Why Does the Cyclical Behavior of Real Wages Change Over Time?," Emory Economics 0309, Department of Economics, Emory University (Atlanta).
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  29. K. Huang & Z. Liu, . "Staggered price-setting, staggered wage-setting, and business cycle persistence," Working Papers 2000-28, Utah State University, Department of Economics.
  30. Benigno, Pierpaolo, 2001. "Optimal Monetary Policy in a Currency Area," CEPR Discussion Papers 2755, C.E.P.R. Discussion Papers.
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