How Well Does a Small Structural Model with Sticky Prices and Wages Fit Postwar U.S. Data?

Julien Matheron and Céline Poilly ()

Working papers from Banque de France

Abstract: In this paper, we ask whether a small structural model with sticky prices and wages, embedding various modelling devices designed to increase the degree of strategic complementarity between price-setters, can fit postwar US data. To answer this question, we resort to a two-step empirical evaluation of our model. In a first step, we estimate the model by minimizing the distance between theoretical autocovariances of key macroeconomic variables and their VAR-based empirical counterparts. In a second step, we resort to Watson's (1993) procedure [Measures of fit for calibrated models. Journal of Political Economy 101 (6), 1011.1041] to quantify the model's goodness-of-fit. Our main result is that the combination of sticky prices and sticky wages is central in order to obtain a good empirical fit. Our analysis also reveals that a model with only sticky wages does not perform well according to Watson's criterion (1993).

Keywords: Sticky prices; Sticky wages; Strategic complementarities; Watson's test. (search for similar items in EconPapers)
JEL-codes: C52 E31 E32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2006
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https://publications.banque-france.fr/sites/defaul ... g-paper_148_2006.pdf (application/pdf)

Related works:
Journal Article: How well does a small structural model with sticky prices and wages fit postwar U.S. data? (2009)
Working Paper: How Well Does a Small Structural Model with Sticky Prices and Wages Fit Postwar U.S. Data? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:148

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