Price and wage inflation inertia under time-dependent adjustments

Giovanni Di Bartolomeo () and Marco Di Pietro

No 103, CIMEO, Sapienza University of Rome from Department of Economics and Law, Sapienza University of Rome

Abstract: We derive and estimate a small-scale DSGE model augmented with price and wage adjustment governed by a time-dependent mechanisms. By using positively sloping hazard functions, we micro-found price and wage inflation intrinsic persistence, as we derive price and wage Phillips curves characterized by both forward and backward terms for inflation. Our estimation confirms upward-sloping hazard functions. Finally, we compare the empirical performance of our model to several popular alternatives based on different price and wage adjustment mechanisms, including Calvo pricing. By comparing log-marginal likelihoods of different estimations, we find that our model clearly outperforms these alternatives.

Keywords: time-dependent price/wage adjustments; Calvo pricing; intrinsic inflation inertia; hybrid Phillips curves; model comparison (search for similar items in EconPapers)
JEL-codes: C11 E31 E32 E52 (search for similar items in EconPapers)
Date: 2013-09
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:0103

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