Monetary Persistence, Imperfect Competition and Staggering Complementarities

37 Pages Posted: 27 Jul 2006

See all articles by Dennis J. Snower

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Christian Merkl

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg; IZA Institute of Labor Economics

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Date Written: May 2006

Abstract

This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are highly complementary in generating monetary persistence. We do so by proposing the new measure "quantitative persistence," after discussing weaknesses of the "contract multiplier," which is generally used to compare persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to explore their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labour and product markets. We show that the conventional wisdom that wage staggering can generate more persistence than price staggering does not necessarily hold.

Keywords: Monetary persistence, price staggering, wage staggering, monetary policy

JEL Classification: E40, E50, E52

Suggested Citation

Snower, Dennis J. and Merkl, Christian, Monetary Persistence, Imperfect Competition and Staggering Complementarities (May 2006). CEPR Discussion Paper No. 5658, Available at SSRN: https://ssrn.com/abstract=920931

Dennis J. Snower (Contact Author)

University of Kiel - Institute for World Economics (IfW) ( email )

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Institute for the Study of Labor (IZA)

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Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute)

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Christian Merkl

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

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Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
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