How Robust Are Popular Models of Nominal Frictions?

Journal of Money, Credit and Banking, 2018, vol. 50, issue 6, 1299-1342

Abstract: We consider alternative combinations of nominal price and wage frictions in dynamic stochastic general equilibrium models fit to U.S. data. Since inflation was unanchored in the 1970s, we divide the data into early, middle, and late samples (1955–68, 1969–79, and 1983–2007, respectively). We find that prices are reoptimized more frequently and exhibit greater indexation to past inflation in the middle sample than in the other two samples, while wages are reoptimized with increasing frequency and display less evidence of indexation over time. Differences in price and wage setting across samples have important implications for the economy's response to key shocks.

Date: 2018
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https://doi.org/10.1111/jmcb.12494

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Working Paper: How robust are popular models of nominal frictions? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:50:y:2018:i:6:p:1299-1342

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