A Phillips Curve with an Ss Foundation / Mark Gertler, John Leahy.

Format:

Book

Author/Creator:

Gertler, Mark.

Contributor:

National Bureau of Economic Research.

Leahy, John.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11971.

NBER working paper series no. w11971

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

We develop an analytically tractable Phillips curve based on state-dependent pricing. We differ from the existing literature by considering a local approximation around a zero inflation steady state and introducing idiosyncratic shocks. The resulting Phillips curve is a simple variation of the conventional time-dependent Calvo formulation, but with some important differences. First, the model is able to match the micro evidence on both the magnitude and timing of price adjustments. Second, holding constant the frequency of price adjustment, our state-dependent model exhibits greater flexibility in the aggregate price level than does the time-dependent model. On the other hand, with real rigidities present, our state-dependent pricing framework can exhibit considerable nominal stickiness, of the same order by a conventional time-dependent model.

Notes:

Print version record

January 2006.