Monetary Persistence, Imperfect Competition, and Staggering Complementarities

Christian Merkl and Dennis Snower

No 3033, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are complementary in generating monetary persistence. We do so by proposing the new measure of "quantitative inertia," after discussing weaknesses of the "contract multiplier," a standard measure of monetary persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to investigate their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labor and product markets. We show that the conventional finding that wage staggering generates more persistence than price staggering holds under homogenous capital accumulation. Under firm-specific capital, wage staggering generates more persistence only when the labor market is sufficiently competitive relative to the product market.

Keywords: firm-specific capital; wage staggering; price staggering; monetary persistence (search for similar items in EconPapers)
JEL-codes: E40 E50 E52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Macroeconomic Dynamics, 2009, 13 (1), 81-106

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https://docs.iza.org/dp3033.pdf (application/pdf)

Related works:
Journal Article: MONETARY PERSISTENCE, IMPERFECT COMPETITION, AND STAGGERING COMPLEMENTARITIES (2009)
Working Paper: Monetary Persistence, Imperfect Competition and Staggering Complementarities (2006)
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