State-dependency and firm-level optimization: a contribution to Calvo price staggering

Peter McAdam () and Alpo Willman

No 806, Working Paper Series from European Central Bank

Abstract: We implement a tractable state-dependent Calvo price-setting signal dependent on inflation and aggregate competitiveness. This allows us to derive a New Keynesian Phillips Curve (NKPC) expressed in terms of the actual levels of variables - rather than in-deviation from "steady state" form - and thus a specification which is not regime-dependent. A consequence of our approach is that ex-ante all firms face the same optimization problem. This state-dependent NKPC nests the conventional hybrid NKPC form as a special case. Finally, we demonstrate the uefulness of our approach by, first, analyzing the persistence and variability of inflation shocks under different inflation regimes and then comparing our state-dependent and timedependent NKPCs on US data. JEL Classification: E31, E32

Keywords: Calvo Price Staggering; Firm-Level Optimization; New Keynesian Phillips Curves; Regime Dependency.+; State-Dependency (search for similar items in EconPapers)
Date: 2007-08
Note: 50336
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007806

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