Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications
38 Pages Posted: 25 Mar 2011
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Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications
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: Suggested Citation
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