Abstract
The Calvo contract pricing mechanism has become the most widely acceptedmicrofoundation to the NK Phillips curve but unfortunately predictsthat all firms in the economy face the same probability of price change. Tobetter explain the stylized fact this paper relaxes the homogeneous firm assumptionin the Calvo contract, to provide a macroeconomic explanation moreconsistent with recently available microeconomic evidence that suggests firmsface differing probabilities of price change. A simple New Keynesian dynamicstochastic general equilibrium (DSGE) model with nominal rigiditiesand habit in consumption for the US is estimated using Bayesian techniquesand finds evidence of a flexible price sector of around 6% and a sticky pricesector of between 55% and 70% depending on model specification.
| Original language | English |
|---|---|
| Place of Publication | University of Manchester |
| Number of pages | 48 |
| Publication status | Published - 22 Oct 2010 |
Publication series
| Name | Centre for Growth and Business Cycle Research Discussion Paper Series |
|---|---|
| Publisher | Economics |
| No. | 150 |
Keywords
- DSGE Model
- Sticky Prices
- Bayesian Estimation
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Middleditch, P. (2010). A New Keynesian Model with Heterogeneous Price Setting. (Centre for Growth and Business Cycle Research Discussion Paper Series; No. 150).
Middleditch, Paul. / A New Keynesian Model with Heterogeneous Price Setting. University of Manchester, 2010. (Centre for Growth and Business Cycle Research Discussion Paper Series; 150).
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Middleditch, P 2010 'A New Keynesian Model with Heterogeneous Price Setting' Centre for Growth and Business Cycle Research Discussion Paper Series, no. 150, University of Manchester.
A New Keynesian Model with Heterogeneous Price Setting. / Middleditch, Paul.
University of Manchester, 2010. (Centre for Growth and Business Cycle Research Discussion Paper Series; No. 150).
Research output: Preprint/Working paper › Working paper
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N2 - The Calvo contract pricing mechanism has become the most widely acceptedmicrofoundation to the NK Phillips curve but unfortunately predictsthat all firms in the economy face the same probability of price change. Tobetter explain the stylized fact this paper relaxes the homogeneous firm assumptionin the Calvo contract, to provide a macroeconomic explanation moreconsistent with recently available microeconomic evidence that suggests firmsface differing probabilities of price change. A simple New Keynesian dynamicstochastic general equilibrium (DSGE) model with nominal rigiditiesand habit in consumption for the US is estimated using Bayesian techniquesand finds evidence of a flexible price sector of around 6% and a sticky pricesector of between 55% and 70% depending on model specification.
AB - The Calvo contract pricing mechanism has become the most widely acceptedmicrofoundation to the NK Phillips curve but unfortunately predictsthat all firms in the economy face the same probability of price change. Tobetter explain the stylized fact this paper relaxes the homogeneous firm assumptionin the Calvo contract, to provide a macroeconomic explanation moreconsistent with recently available microeconomic evidence that suggests firmsface differing probabilities of price change. A simple New Keynesian dynamicstochastic general equilibrium (DSGE) model with nominal rigiditiesand habit in consumption for the US is estimated using Bayesian techniquesand finds evidence of a flexible price sector of around 6% and a sticky pricesector of between 55% and 70% depending on model specification.
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KW - Bayesian Estimation
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Middleditch P. A New Keynesian Model with Heterogeneous Price Setting. University of Manchester. 2010 Oct 22. (Centre for Growth and Business Cycle Research Discussion Paper Series; 150).
