Gali and Gertler (1999) are the first to find that the baseline sticky price model fits the U.S. data
well. I examine the robustness of their estimates along two dimensions. First, I show that their IV estimates
are not robust to an alternative normalization of the moment condition being estimated. However, when using
a Monte Carlo study to investigate small-sample properties, I show that the normalization chosen by Gali and
Gertler (1999) yields a superior estimator. Second, I check whether or not the proportion of backward-looking
firms augmenting the baseline model to fit the data is dependent on the type of contracting assumed. I find
that using Taylor-style contracts, rather than Calvo-style contracts, this proportion jumps to 50 percent.
Full paper (268 KB PDF)
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Last update: December 28, 2001