Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem? / V. V. Chari, Patrick J. Kehoe, Ellen R. McGrattan.

Format:

Book

Author/Creator:

Chari, V. V.

Contributor:

National Bureau of Economic Research.

Kehoe, Patrick J.

McGrattan, Ellen R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5809.

NBER working paper series no. w5809

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Sticky Price Models of the Business Cycle

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

The purpose of this paper is to construct a quantitative equilibrium model with price setting and use it to ask whether staggered price setting can generate persistent output fluctuations following monetary shocks. We construct a business cycle version of a standard sticky price model in which imperfectly competitive firms set nominal prices in a staggered fashion. We assume that prices are exogenously sticky for a short period of time. Persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices very much when they can do so. We find the amount of endogenous stickiness to be small. As a result, we find that such a model cannot generate persistent movements in output following monetary shocks.

Notes:

Print version record

October 1996.