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Partial adjustment and staggered price setting

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Abstract

This paper compares staggered price setting to partial adjustment of prices in a small optimizing IS/LM model. In contrast to the overwhelming perception in the literature, the models are not similar for most parameterizations. These results clarify some confusion in recent work regarding the persistence of output responses to monetary shocks, reveal important quantitative differences between the stabilizing properties of different monetary policies across sticky price specifications, and highlight the role for more research on new-Keynesian \"real rigidities\" in DGE models.

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  • Michael T. Kiley, 1999. "Partial adjustment and staggered price setting," Finance and Economics Discussion Series 1999-01, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1999-01
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