Predetermined Prices and the Persistent Effects of Money on Output

Michael Devereux and James Yetman

Staff Working Papers from Bank of Canada

Abstract: This paper illustrates a model of predetermined pricing, where firms set a fixed schedule of nominal prices at the time of price readjustment, based on the work of Fischer (1977). This type of price-setting specification cannot produce any excess persistence in a fixed-duration model of staggered prices, but we show that with a probabilistic model of price adjustment, as in Calvo (1983), a predetermined pricing specification can produce excess persistence. Moreover, in response to a money shock, the aggregate dynamics are very similar to those under a specification of fixed prices, the assumption underlying most recent dynamic sticky-price models.

Keywords: Transmission; of; monetary; policy (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2001
New Economics Papers: this item is included in nep-cba and nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Predetermined Prices and the Persistent Effects of Money on Output (2003)
Working Paper: Predetermined Prices and the Persistent Effects of Money on Output (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:01-13

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