Is Rotemberg pricing justified by macro data?
Alexander Richter () and
Economics Letters, 2016, vol. 149, issue C, 44-48
Structural models used to study monetary policy often include sticky prices. Calvo pricing is more common but Rotemberg pricing has become popular due to its computational advantage. To determine whether the data supports that change, we estimate a nonlinear New Keynesian model with a zero lower bound (ZLB) constraint and each type of sticky prices. The models produce similar parameter estimates and the filtered shocks are nearly identical when the Fed was not constrained, but the Rotemberg model has a higher marginal data density and it endogenously generates more volatility at the ZLB, which helps explain data from 2008–2011.
Keywords: Bayesian estimation; Calvo pricing; Rotemberg pricing; Zero lower bound (search for similar items in EconPapers)
JEL-codes: C11 E43 E58 (search for similar items in EconPapers)
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