Welfare implications of Calvo vs. Rotemberg pricing assumptions

David Vestin and Giovanni Lombardo

No 770, Working Paper Series from European Central Bank

Abstract: This paper compares the welfare implications of two widely used pricing assumptions in the New-Keynesian literature: Calvo-pricing vs. Rotemberg-pricing. We show that despite the strong similarities between the two assumptions to a first order of approximation, in general they might entail different welfare costs at higher order of approximation. In the special case of non-distorted steady state, the two pricing assumptions imply identical welfare losses to a second order of approximation. JEL Classification: E3, E5

Keywords: Calvo price adjustment; inflation; Rotemberg price adjustment; second-order approximation; welfare (search for similar items in EconPapers)
Date: 2007-06
Note: 343743
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Welfare implications of Calvo vs. Rotemberg-pricing assumptions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007770

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