The Equivalence of Wage and Price Staggering in Monetary Business Cycle Models

Rochelle Edge ()

Review of Economic Dynamics, 2002, vol. 5, issue 3, 559-585

Abstract: Chari, Kehoe, and McGratten's (1998) finding that a standard monetary business cycle model with staggered price setting is unable to generate sufficiently persistent real effects of monetary shocks has engendered a growing literature aimed at developing alternative mechanisms for producing greater persistence. The most popular approach at present in this literature appears to be one in which staggered wage contracts are used as either an alternative or a complement to a staggered price mechanism. This is informed by recent research by Andersen (1998) and Huang and Liu (1998) which finds that the staggered wage model, despite its superficial similarity to the staggered price setup, incorporates a very different microstructure that implies substantially more real persistence. This paper argues that these authors' findings rely heavily on the assumption that identical inputs are used by all firms, and demonstrates that, by assuming firm-specific factor inputs the staggered price model is as capable as the staggered wage model of generating persistent real responses to monetary shocks. (Copyright: Elsevier)

Keywords: Taylor contracting; output persistence; sticky prices; sticky wages; firm-specific factor inputs. (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (51)

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Related works:
Working Paper: Online Appendix to "The Equivalence of Wage and Price Staggering in Monetary Business Cycle Models" (2001)
Working Paper: The equivalence of wage and price staggering in monetary business cycle models (2000)
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DOI: 10.1006/redy.2001.0147

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