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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Partial Adjustment and Staggered Price Setting
Michael T. Kiley

Abstract: This paper compares staggered price setting to partial adjustment of prices in a small optimizing IS/LM model. In contrast to the overwhelming perception in the literature, the models are not similar for most parameterizations. These results clarify some confusion in recent work regarding the persistence of output responses to monetary shocks, reveal important quantitative differences between the stabilizing properties of different monetary policies across sticky price specifications, and highlight the role for more research on new-Keynesian "real rigidities" in DGE models.

Keywords: Price rigidity, Calvo model, Taylor model

Full paper (177 KB Postscript)

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Last update: March 2, 1999