Evaluating the Calvo Model of Sticky Prices

Martin Eichenbaum () and Jonas Fisher ()

No 10617, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Can variants of the classic Calvo (1983) model of sticky prices account for the statistical behavior of post-war US inflation? We develop and test versions of the model for which the answer to this question is yes. We then investigate whether these models imply plausible degrees of inertia in price setting behavior by firms. We find that they do, but only if we depart from two auxiliary assumptions made in standard expositions of the Calvo model. These assumptions are that monopolistically competitive firms face a constant elasticity of demand and capital can be instantaneously reallocated after a shock. When we modify these assumptions our model is consistent with the view that firms re-optimize prices

JEL-codes: E0 E1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2004-07
Note: EFG ME
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w10617.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: Evaluating the Calvo model of sticky prices (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:10617

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10617
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().