Calvo vs. Rotemberg in a trend inflation world: An empirical investigation

Guido Ascari, Efrem Castelnuovo and Lorenza Rossi

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 11, 1852-1867

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) point to a substantially lower degree of price indexation under Calvo. We show that the superiority of the Calvo model is due to the restrictions imposed by such a pricing scheme on the aggregate demand equation.

Keywords: Calvo; Rotemberg; Trend inflation; Bayesian estimations (search for similar items in EconPapers)
JEL-codes: C32 E3 E52 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (79)

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Related works:
Working Paper: Calvo vs. Rotemberg in a Trend Inflation World: An Empirical Investigation (2010)
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:eee:dyncon:v:35:y:2011:i:11:p:1852-1867

DOI: 10.1016/j.jedc.2011.06.002

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