The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Staggered Price Setting and Real Rigidities
Michael T. Kiley

Abstract: This paper emphasizes the notion that model features that contribute to endogenous price rigidity under staggered price setting lower the elasticity of marginal cost with respect to output, and these same model features tend to generate equilibrium indeterminacy, or "sunspot fluctuations", under price flexibility. Using this insight, staggered price setting is shown to imply persistent output responses to monetary shocks for certain parameterizations of one- and two-sector models with small increasing returns or countercyclical markups, and other model features that would contribute to persistence are discussed.

Keywords: Nominal price rigidity, indeterminacy

Full paper (93 KB PDF) | Full paper (270 KB Postscript)

Home | Economic research and data | FR working papers | FEDS | 1997 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: January 27, 1998