Staggered prices and trend inflation: some nuisances

Guido Ascari ()

No 27/2003, Research Discussion Papers from Bank of Finland

Abstract: Most of the papers in the sticky-price literature are based on a log-linearization around the zero inflation steady state, a simplifying but counterfactual assumption. This paper shows that when trend inflation is considered, both the long-run and the short-run properties of DGE models based on the Calvo staggered price model change dramatically. It follows that results obtained by models log-linearized around a zero inflation steady state are quite misleading. Furthermore, the same is not true for models based on the Taylor staggered price model, which is robust to changes in trend inflation. As a conclusion, the Taylor model is to be preferred, unless one is willing to index nominal variables.

Keywords: inflation; staggered price/wages (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2003-11-11
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Related works:
Working Paper: Staggered prices and trend inflation: some nuisances (2004)
Working Paper: Staggered Price and Trend Inflation:Some Nuisances (2002)
Journal Article: Staggered Prices and Trend Inflation: Some Nuisances (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:bofrdp:2003_027

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