THE DYNAMIC PROPERTIES OF ALTERNATIVE ASSUMPTIONS ON PRICE ADJUSTMENT IN NEW KEYNESIAN MODELS

ABSTRACT This paper presents a classification of the different new Phillips curves existing in the literature as a set of choices based on three assumptions: the choice of the structure of price adjustments (Calvo or Taylor), the presence of backward indexation and the type of price contracts (fixed...

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Bibliographic Details
Published in:Bulletin of economic research 2011-10, Vol.63 (4), p.353-384
Main Authors: Aïssa, Mohamed Safouane Ben, Musy, Olivier
Format: Article
Language:English
Subjects:
Calvo price rule
disinflation policy
Dynamic models
E31
E52
fixed prices
Inflation
Keynesian theory
Macroeconomics
Monetary theory
New Keynesian Phillips curves
Output
Phillips curve
predetermined price
Price level
Price theory
Prices
Sticky prices
Studies
Taylor price rule
Taylor rule
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Summary:ABSTRACT This paper presents a classification of the different new Phillips curves existing in the literature as a set of choices based on three assumptions: the choice of the structure of price adjustments (Calvo or Taylor), the presence of backward indexation and the type of price contracts (fixed prices or predetermined prices). The paper suggests study of the dynamic properties of each specification, following different monetary shocks on the growth rate of the money stock. We develop the analytical form of the price dynamics, and we display graphics for the responses of prices, output and inflation. We show that the choice made for each of the three assumptions has a strong influence on the dynamic properties. Notably, the choice of the price structure, while often considered as unimportant, is indeed the most influential choice concerning the dynamic responses of output and inflation.
ISSN:0307-3378
1467-8586
DOI:10.1111/j.1467-8586.2009.00349.x