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Persistence and Nominal Inertia in a Generalised Taylor Economy: How Loner Contracts Dominate Shorter Contracts

  • Engin Kara

    (University of York)

  • Huw Dixon

    (University of York)

n this paper we develop the Generalize Taylor Economy (GTE) in which there are many sectors with overlapping contracts of different lengths. We are able to show that even in economies with the same average contract length, monetary shocks will be more persistent when there are longer contracts. In particular we are able to solve the puzzle of why Calvo contracts appear to be more persistent than simple Taylor contracts: it is because the standard calibration of Calvo contracts is not correct

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2005 with number 82.

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Date of creation: 03 Sep 2005
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Handle: RePEc:mmf:mmfc05:82
Contact details of provider: Web page: http://www.essex.ac.uk/afm/mmf/index.html

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