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Sticky-Price Models of the Business Cycle: Specification and Stability

  • Peter N. Ireland

This paper focuses on the specification and stability of a dynamic, stochastic, general equilibrium model of the American business cycle with sticky prices. Maximum likelihood estimates reveal that the data prefer a version of the model in which adjustment costs apply to the price level but not to the inflation rate. Formal hypothesis test detect instability in the estimated parameters, particularly in estimates of the representative household's discount factor. Evidently, more detailed descriptions of the economy are needed to explain movements in interest rates before and after 1979.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7511.

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Date of creation: Jan 2000
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Publication status: published as Ireland, Peter N. "Sticky-Price Models Of The Business Cycle: Specification And Stability," Journal of Monetary Economics, 2001, v47(1,Feb), 3-18.
Handle: RePEc:nbr:nberwo:7511
Note: ME
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  1. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
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  29. repec:nbr:nberre:0126 is not listed on IDEAS
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