Keywords: Price rigidity, Calvo model, Taylor model
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.
Full paper (177 KB Postscript)
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Last update: March 2, 1999