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Sticky-Price Models of the Business Cycle: Specification and Stability

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  • Peter N. Ireland

    (Boston College)

Abstract

This paper focuses on the specification and stability of a dynamic, stochastic, general equilibrium model of the business cycle with sticky prices. Maximum likelihood estimates reveal that the data prefer a version of the model in which adjustment costs apply to the price level but not to the inflation rate. Formal hypothesis tests provide evidence of instability in the estimated parameters, concentrated in the Euler equation linking consumption growth to the interest rate.

Suggested Citation

  • Peter N. Ireland, 1999. "Sticky-Price Models of the Business Cycle: Specification and Stability," Boston College Working Papers in Economics 426, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:426
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    More about this item

    Keywords

    Sticky prices; Business Cycles;

    JEL classification:

    • 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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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