Using Micro Data on Prices to Improve Business Cycle Models

Engin Kara

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: I embed the pricing model proposed by Dixon and Kara (2011a, b) (i.e. a Generalized Taylor Economy (GTE)) into a state of the art instance of New Keynesian economics (e.g. Christiano, Eichenbaum and Evans (2005) and Smets and Wouters (2007)). The GTE is built to account for one of the most important features of the data: hetero- geneity in price spells. I estimate the resulting model for the US using Bayesian methods. The new model matches key features of micro and macro data that would otherwise have been elusive.

Keywords: DSGE models; reset inflation; GTE; Calvo. (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-11
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:12/632

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