A unified framework for understanding and comparing dynamic wage and price setting models

Huw David Dixon ()

No E2009/20, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This paper argues that the cross-sectional approach to durations is essential to understand nominal rigidity because this captures the fact that price-spells are generated by firms' price-setting behavior. Since the distribution of durations is dominated by a proliferation of short contracts, the cross-sectional measure corrects for this by length-biased sampling. Modelling the price-spell durations in this way enables us to see how Taylor, Calvo and their generalizations relate to each other, and enable us to compare price-setting behavior for a given distribution of durations. We also show how the micro-data can be directly related to the macroeconomic pricing models in this setting.

Keywords: Price-spell; steady state; hazard rate; Calvo; Taylor (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2009-10
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Persistent link: http://EconPapers.repec.org/RePEc:cdf:wpaper:2009/20

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