Staggered prices and trend inflation: Some nuisances

Guido Ascari

No 27/2003, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: Most of the papers in the sticky-price literature are based on a log-linearization around the zero inflation steady state, a simplifying but counterfactual assumption.This paper shows that when trend inflation is considered, both the long-run and the short-run properties of DGE models based on the Calvo staggered price model change dramatically.It follows that results obtained by models log-linearized around a zero inflation steady state are quite misleading.Furthermore, the same is not true for models based on the Taylor staggered price model, which is robust to changes in trend inflation.As a conclusion, the Taylor model is to be preferred, unless one is willing to index nominal variables.

Date: 2003
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Related works:
Journal Article: Staggered Prices and Trend Inflation: Some Nuisances (2004)
Working Paper: Staggered prices and trend inflation: some nuisances (2004)
Working Paper: Staggered Price and Trend Inflation:Some Nuisances (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2003_027

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