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Monetary Persistence, Imperfect Competition, and Staggering Complementarities

  • Merkl, Christian

    ()

    (University of Erlangen-Nuremberg)

  • Snower, Dennis J.

    ()

    (Kiel Institute for the World Economy)

This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are complementary in generating monetary persistence. We do so by proposing the new measure of "quantitative inertia," after discussing weaknesses of the "contract multiplier," a standard measure of monetary persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to investigate their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labor and product markets. We show that the conventional finding that wage staggering generates more persistence than price staggering holds under homogenous capital accumulation. Under firm-specific capital, wage staggering generates more persistence only when the labor market is sufficiently competitive relative to the product market.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3033.

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Length: 33 pages
Date of creation: Sep 2007
Date of revision:
Publication status: published in: Macroeconomic Dynamics, 2009, 13 (1), 81-106
Handle: RePEc:iza:izadps:dp3033
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