Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications

38 Pages Posted: 25 Mar 2011

See all articles by Huw David Dixon

Huw David Dixon

Cardiff University - Cardiff Business School

Hervé le Bihan

Banque de France - Centre de Recherche

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2011

Abstract

The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counterparts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation.

Keywords: Contract length, steady state, hazard rate, Calvo, Taylor, wage-setting, price-setting

JEL Classification: E31, E32, E52, J30

Suggested Citation

Dixon, Huw David and Le Bihan, Herve, Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications (March 1, 2011). Banque de France Working Paper No. 324, Available at SSRN: https://ssrn.com/abstract=1789622 or http://dx.doi.org/10.2139/ssrn.1789622

Huw David Dixon (Contact Author)

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Herve Le Bihan

Banque de France - Centre de Recherche ( email )

31 rue Croix des Petits Champs
Room 41-1391
75049 Paris Cedex 01
France

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