Predetermined Prices and the Persistent Effects of Money on Output

Michael Devereux and James Yetman

No 2917, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper illustrates a model of predetermined pricing based on the work of Fischer (1977), where firms set a fixed schedule of nominal prices at the time of price readjustment. 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: Sticky prices; Predetermined prices; Money shocks (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2001-08
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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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