On the Determinacy of New Keynesian Models with Staggered Wage and Price Setting

Peter Flaschel, Reiner Franke and Christian Proaño
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Reiner Franke: Kiel University, Germany

No 11-2008, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: This paper shows that an analytical determinacy analysis of the baseline New Keynesian model with both staggered wages and prices developed by Erceg, Henderson and Levin (2000) is possible despite the high dimensional nature of this model. It is possible if the formulation of the model is translated from discrete to continuous time. Our findings corroborates in an analytical manner Galí's (2008) numerical findings regarding the determinacy frontier and the Taylor principle for this model type, where a generalized Taylor rule that employs a weighted combination of wage and price inflation is used as a measure for the inflation gap.

Keywords: Period models; continuous time; (in)determinacy. (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:11-2008

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