Calvo vs. Rotemberg in a Trend Inflation World: An Empirical Investigation

Guido Ascari, Efrem Castelnuovo and Lorenza Rossi

No 116, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper estimates and compares New-Keynesian DSGE monetary models of the business cycle derived under two different pricing schemes - Calvo (1983) and Rotemberg (1982) - under a positive trend inflation rate. Our empirical findings (i) support trend inflation as an empirically relevant feature of the U.S. great moderation; (ii) provide evidence in favor of the statistical superiority of the Calvo setting; (iii) support the absence of price indexation under the Calvo mechanism only. The superiority of the Calvo model (against Rotemberg) is due to the restrictions imposed by such a pricing scheme on the aggregate demand equation. The determinacy regions implied by the two estimated models indicate relevant differences in the implementable simple policy rules.

Keywords: Calvo; Rotemberg; trend inflation; Bayesian estimations. (search for similar items in EconPapers)
JEL-codes: L40 L52 L62 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-02
New Economics Papers: this item is included in nep-cba and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Calvo vs. Rotemberg in a trend inflation world: An empirical investigation (2011)
Working Paper: Calvo vs. Rotemberg in a Trend Inflation World: An Empirical Investigation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0116

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