Identifying the Influences of Nominal and Real Rigidities in Aggregate Price-Setting Behavior

Andrew Levin () and Günter Coenen

No 66, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: We formulate a generalized price-setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs. real rigidities. Using German macroeconomic data over the period 1975Q1 through 1998Q4 to estimate this framework, we find that the data is well-characterized by a truncated Calvo-style distribution with an average duration of about two quarters. We also find that new contracts exhibit very low sensitivity to marginal cost, corresponding to a relatively high degree of real rigidity. Finally, our results indicate that backward-looking behavior is not needed to explain the aggregate data, at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective

Keywords: overlapping contracts; nominal rigidity; real rigidity; inflation persistence; simulation-based indirect inference (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2005-11-11
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Identifying the influences of nominal and real rigidities in aggregate price-setting behavior (2007)
Working Paper: Identifying the influences of nominal and real rigidities in aggregate price-setting behavior (2004)
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