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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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  11. Huw Dixon & Engin Kara, . "How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley," Discussion Papers 05/04, Department of Economics, University of York.
  12. Dixon, Huw, 2006. "The distribution of contract durations across firms: a unified framework for understanding and comparing dynamic wage and price setting models," Working Paper Series 0676, European Central Bank.
  13. Charles T. Carlstrom & Timothy S. Fuerst & Fabio Ghironi, 2002. "Does It Matter (for Equilibrium Determinacy) What Price Index the Central Bank Targets?," Boston College Working Papers in Economics 533, Boston College Department of Economics, revised 07 Feb 2003.
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  24. Huw Dixon, . "Macroeconomic Price and Quantity Responses with Heterogeneous Product Markets," Discussion Papers 93/4, Department of Economics, University of York.
  25. Ascari, G., 1997. "Optimizing Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," The Warwick Economics Research Paper Series (TWERPS) 486, University of Warwick, Department of Economics.
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