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On the Determinacy of New Keynesian Models with Staggered Wage and Price Setting

  • Peter Flaschel


    (Bielefeld University, Germany)

  • Reiner Franke

    (Kiel University, Germany)

  • Christian Proano


    (IMK at the Hans Boeckler Foundation)

This paper shows that an analytical determinacy analysis of the baseline New Keynesian model with both staggered wages and prices developed by Erceg, Henderson and Levin (2000) is possible despite the high dimensional nature of this model. It is possible if the formulation of the model is translated from discrete to continuous time. Our findings corroborates in an analytical manner Galí's (2008) numerical findings regarding the determinacy frontier and the Taylor principle for this model type, where a generalized Taylor rule that employs a weighted combination of wage and price inflation is used as a measure for the inflation gap.

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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 11-2008.

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Length: 20 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:imk:wpaper:11-2008
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  1. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
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