Endogenous price stickiness and business cycle persistence
Both imperfect information and sticky prices allow nominal shocks to act as business cycle impulses, but only sticky prices propagate the real effects of nominal shocks. A simple model of imperfect information and sticky prices developed herein indicates that high rates of inflation lead to less price stickiness, and hence less persistent output fluctuations. Estimation of the model, as well as simple autocorrelations of real output, indicate that indeed output fluctuations are less persistent in high inflation economies. These results lend little support to models in which output persistence is explained through persistent real shocks, capital accumulation, or adjustment costs.
|Date of creation:||1996|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
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.:
- Caballero, Ricardo J. & Engel, Eduardo M. R. A., 1993.
"Microeconomic rigidities and aggregate price dynamics,"
European Economic Review,
Elsevier, vol. 37(4), pages 697-711, May.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Rigidities and Aggregate Price Dynamics," NBER Working Papers 4162, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
- Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
- Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
- Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
- Andersen, Torben M., 1994. "Price Rigidity: Causes and Macroeconomic Implications," OUP Catalogue, Oxford University Press, number 9780198287605.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
- Romer, David, 1990. "Staggered price setting with endogenous frequency of adjustment," Economics Letters, Elsevier, vol. 32(3), pages 205-210, March.
- David Romer., 1989. "Staggered Price Setting with Endogenous Frequency of Adjustment," Economics Working Papers 89-115, University of California at Berkeley.
- David Romer, 1989. "Staggered Price Setting with Endogenous Frequency of Adjustment," NBER Working Papers 3134, National Bureau of Economic Research, Inc.
- Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
- Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
- Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank.
- Julio J. Rotemberg & Michael Woodford, 1994. "Is the Business Cycles a Necessary Consequence of Stochastic Growth?," NBER Working Papers 4650, National Bureau of Economic Research, Inc.
- DeFina, Robert H, 1991. "International Evidence on a New Keynesian Theory of the Output-Inflation Trade-Off," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 410-422, August.
- Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
- Laurence Ball & N. Gregory Mankiw, 1994. "A sticky-price manifesto," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
- Laurence Ball & N. Gregory Mankiw, 1994. "A Sticky-Price Manifesto," NBER Working Papers 4677, National Bureau of Economic Research, Inc.
- Julio Rotemberg, 1987. "The New Keynesian Microfoundations," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 69-116 National Bureau of Economic Research, Inc.
- Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
- Alberro, Jose, 1981. "The Lucas hypothesis on the Phillips Curve : Further international evidence," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 239-250.
- Rotemberg, Julio J., 1996. "Prices, output, and hours: An empirical analysis based on a sticky price model," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 505-533, June.
- Julio J. Rotemberg, 1994. "Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model," NBER Working Papers 4948, National Bureau of Economic Research, Inc.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Price Rigidities, Asymmetries, and Output Fluctuations," NBER Working Papers 4091, National Bureau of Economic Research, Inc.
- Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:96-23. 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: (Franz Osorio)
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.