IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Input-Output Structure and Nominal Staggering: The Persistence Problem Revisited

This paper re-examines the conventional wisdom on the equivalence of staggered-wage setting and staggered-price setting in generating persistent real effects of aggregate demand shocks in a dynamic general equilibrium framework with an input-output production structure. Under staggered-wage setting, a relative wage consideration of households induces sluggish wage adjustments and thus sluggish price adjustments as well, just as in the case with no input-output connections. Under staggered-price setting, relative wages are constant, but the presence of the input-output structure creates a real wage effect which prevents nominal wages from deviating too much from the sticky intermediate input prices, resulting in an endogenous nominal wage rigidity; at the same time, the stickiness in the intermediate input prices translates directly into the sluggishness in marginal cost movements, reinforcing the real wage effect to increase the rigidity in firms' pricing decisions. Thus, while not helping the staggered-wage setting, the input-output structure improves the ability of the staggered-price setting in generating persistence. As a result, the conventional wisdom may continue to hold for some reasonable parameter values.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah145.pdf
File Function: Main text
Download Restriction: no

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 145.

as
in new window

Length: 23 pages
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:cre:crefwp:145
Contact details of provider: Postal:
P.O. Box 8888, Downtown Station, Montreal (Canada) Quebec, H3C 3P8

Phone: (514) 987-6181
Fax: (514) 987-8494
Web page: http://ideas.uqam.ca/CREFE/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
  2. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  4. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," Harvard Institute of Economic Research Working Papers 1905, Harvard - Institute of Economic Research.
  5. Dupor, Bill, 1999. "Aggregation and irrelevance in multi-sector models," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 391-409, April.
  6. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," NBER Working Papers 7090, National Bureau of Economic Research, Inc.
  7. Kiley, Michael T, 2000. "Endogenous Price Stickiness and Business Cycle Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 28-53, February.
  8. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  9. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  10. Kevin Huang & Z. Liu, . "Staggered contracts and business cycle persistence," Working Papers 2000-08, Utah State University, Department of Economics.
  11. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  12. Nelson, E., 1998. "Sluggish inflation and optimizing models of the business cycle," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 303-322, July.
  13. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Working Paper Series, Macroeconomic Issues WP-96-28, Federal Reserve Bank of Chicago.
  14. Andersen, Torben M., 1998. "Persistency in sticky price models," European Economic Review, Elsevier, vol. 42(3-5), pages 593-603, May.
  15. Bergin, Paul R. & Feenstra, Robert C., 2000. "Staggered price setting, translog preferences, and endogenous persistence," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 657-680, June.
  16. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report 217, Federal Reserve Bank of Minneapolis.
  17. Susanto Basu & John G. Fernald, 1994. "Constant returns and small markups in U.S. manufacturing," International Finance Discussion Papers 483, Board of Governors of the Federal Reserve System (U.S.).
  18. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  19. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  20. Basu, Susanto, 1995. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," American Economic Review, American Economic Association, vol. 85(3), pages 512-31, June.
  21. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  22. Dennis J. Snower & Assar Lindbeck, 1999. "Price Dynamics and Production Lags," American Economic Review, American Economic Association, vol. 89(2), pages 81-88, May.
  23. Huang, Kevin X. D. & Liu, Zheng, 2001. "Production chains and general equilibrium aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 437-462, October.
  24. Laurence Ball, 1990. "Credible Disinflation with Staggered Price Setting," NBER Working Papers 3555, National Bureau of Economic Research, Inc.
  25. Rupert, Peter & Rogerson, Richard & Wright, Randall, 2000. "Homework in labor economics: Household production and intertemporal substitution," Journal of Monetary Economics, Elsevier, vol. 46(3), pages 557-579, December.
  26. Ludger Linnemann, 1999. "Sectoral and aggregate estimates of the cyclical behavior of markups: Evidence from Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(3), pages 480-500, September.
  27. Jordi Galí, 1992. "How Well Does The IS-LM Model Fit Postwar U. S. Data?," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 709-738.
  28. Kevin X. D. Huang & Zheng Liu & Louis Phaneuf, 2000. "On the Transmission of Monetary Policy Shocks," Cahiers de recherche CREFE / CREFE Working Papers 112, CREFE, Université du Québec à Montréal, revised Sep 2001.
  29. Casey B. Mulligan, 1998. "Substitution over Time: Another Look at Life Cycle Labor Supply," NBER Working Papers 6585, National Bureau of Economic Research, Inc.
  30. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
  31. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
  32. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  33. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
  34. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  35. Olivier J. Blanchard, 1982. "Price Asynchronization and Price Level Inertia," NBER Working Papers 0900, National Bureau of Economic Research, Inc.
  36. David L. Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
  37. Matthew D. Shapiro, 1987. "Measuring Market Power in U.S. Industry," NBER Working Papers 2212, National Bureau of Economic Research, Inc.
  38. Hornstein, Andreas & Praschnik, Jack, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 573-595, December.
  39. Lindbeck, Assar & Snower, Dennis J., 1999. "Price Dynamics and Production Lags," IZA Discussion Papers 33, Institute for the Study of Labor (IZA).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cre:crefwp:145. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stéphane Pallage)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.