Can We Explain Inflation Persistence in a Way that Is Consistent with the Microevidence on Nominal Rigidity?

Dixon, Huw David; Kara, Engin

doi:10.1111/j.1538-4616.2009.00282.x

Cited by 30 publications

(52 citation statements)

References 55 publications

(115 reference statements)

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“…Hence, if z t follows a white noise, the expected real wage is purely a function of output (or employment), as expected in the related literature (see Abraham and Haltiwanger 1995, Spencer 1998, Walsh 2003, Dixon and Kara 2010.…”

Section: Firms Employment and Price And Wage Settingmentioning

confidence: 71%

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Monetary policy and real wage cyclicality

Amarasekara

Bratsiotis

2012

Applied Economics

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This paper points to the potential role of monetary policy in affecting the degree of real wage cyclicality. We show that the degree and direction of real wage cyclicality is determined by the interaction of (i) the returns to scale in production, (ii) the nature of aggregate shocks, and (iii) monetary policy. Given that production technology is fairly constant in the short run, we suggest that variations in the real wage -output covariance depend largely on the combination of the latter two. Identifying well-documeneted monetary policy phases in six major OECD countries and accounting for both aggregate demand and supply shocks, we provide empirical evidence to support our main theoretical claim. JEL Classi…cation Numbers: E24, E32, E52.

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Section: Firms Employment and Price And Wage Settingmentioning

confidence: 71%

“…This simple and widely used wage-setting rule assumes that wages are predetermined one period in advance, based on the expected (at time t 1) optimal wage for period t (see Fischer 1977, or more recently, Dixon andKara 2010). Using (7) into (12 ) and averaging across symmetric wages (i.e.…”

Section: Firms Employment and Price And Wage Settingmentioning

confidence: 99%

Monetary policy and real wage cyclicality

Amarasekara

Bratsiotis

2012

Applied Economics

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“…I will also check the robustness of my results to an alternative way of modelling heterogeneity in price stickiness using the Generalised Taylor Economy (GTE) (see Dixon and Kara (2010)). …”

Section: Robustnessmentioning

confidence: 99%

The Reset Inflation Puzzle and the Heterogeneity in Price Stickiness

Kara

2015

SSRN Journal

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New Keynesian models have been criticised on the grounds that they require implausibly large price shocks to explain inflation. Bils, Klenow, and Malin (2012) show that, while these shocks are needed to reduce the excessive inflation persistence generated by the models, they give rise to unrealistically volatile reset price inflation. This paper shows that introducing heterogeneity in price stickiness in the models overcomes these criticisms directed at them.The incorporation of heterogeneity in price stickiness reduces the need for large price shocks. With smaller price shocks, the new model comes close to matching the data on reset inflation.

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“…He …nds that the generalized Calvo model can generate in ‡ation inertia, but it fails in predicting the hump-shaped in ‡ation response. Dixon and Kara (2010) generalize the …x-duration Taylor contract model by introducing a distribution of contract lengths using micro data. In order to generate a signi…cant hump-shaped in ‡ation response, their model needs a mean contract duration as long as 7 quarters, which is at odds with the mean duration in the micro data.…”

Section: Related Literaturementioning

confidence: 99%

Non-Constant Hazard Function and Inflation Dynamics

Yao

2011

SSRN Journal

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This paper presents some general results regarding the implications of the price reset hazard function for in ‡ation dynamics. I …rst derive analytical results in a simple setup, showing that the shape of the price-duration distribution determines the shape of impulse responses of in ‡ation. This result also holds under a more realistic setup with strategic complementarity, forward-looking IS curve and the Taylor rule in the numerical solution. I …nd that, under an increasing hazard function calibrated using the survey data, the model generates a hump-shaped impulse response of in ‡ation to a monetary policy shock. In addition, thanks to the endogenous in ‡ation inertia introduced by the ‡exible hazard function, the increasing-hazard model achieves a better in ‡ation-output trade-o¤ than the Calvo model in facing a cost-push shock.JEL classi…cation: E31; E52

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Can We Explain Inflation Persistence in a Way that Is Consistent with the Microevidence on Nominal Rigidity?

Cited by 30 publications

References 55 publications

Monetary policy and real wage cyclicality

Monetary policy and real wage cyclicality

The Reset Inflation Puzzle and the Heterogeneity in Price Stickiness

Non-Constant Hazard Function and Inflation Dynamics

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