Abstract not found

• Studied as an Erasmus student taking four exams.

This paper develops a dynamic general equilibrium model where price and wage reset probabilities are duration dependent and analyses the effects of monetary shocks on inflation. The model is simulated for alternative reset probability distributions. It is found that such a model can explain the behaviour of inflation better than the standard Calvo model, in particular with respect to the delayed effect on inflation of a monetary policy shock. In this model, in fact, under certain conditions, the maximum impact occurs some time after the shock. Moreover, it is found that the presence of wage rigidities in addition to price rigidities is fundamental for the validity of the results.

Abstract: Recently, there has been increased interest in the empirical investigation of the extent of price stickiness. According to Dixon (2006), however, most of these papers report the “mean of the wrong distribution”: instead of calculating the mean across firms, papers generally report the mean across contracts. This paper develops a method to estimate the mean price duration across firms (in our terminology, the mean of the cross-sectional duration distribution), which is robust to censoring and unobserved cross-sectional heterogeneity, both present in usual data sets. The method is comprised of two steps: first we estimate aggregate hazard, and then calculate the hazard-implied mean durations. We show that while in case of unobserved cross-sectional heterogeneity the (shape of the) estimated aggregate hazard is biased, the hazard-implied average cross-sectional duration is unbiased (for the average of individual mean cross-sectional durations). The method is applied to Hungarian micro CPI-data to estimate mean price durations in Hungary between 2002-2006.

This paper develops a dynamic general equilibrium model where price and wage reset probabilities are duration dependent and analyses the effects of monetary shocks on inflation. The model is simulated for alternative reset probability distributions. It is found that such a model can explain the behaviour of inflation better than the standard Calvo model, in particular with respect to the delayed effect on inflation of a monetary policy shock. In this model, in fact, under certain conditions, the maximum impact occurs some time after the shock. Moreover, it is found that the presence of wage rigidities in addition to price rigidities is fundamental for the validity of the results.