Arrow–Calvo Price Staggering
European Central Bank (ECB); University of Surrey, Economics
affiliation not provided to SSRN
The Manchester School, Vol. 78, Issue 6, pp. 556-581, December 2010
We merge Arrow and Calvo pricing themes leading to a price-resetting signal dependent on inflation and competitiveness. This allows us to tractably analyse state-dependent issues and to develop a New Keynesian Phillips curve (NKPC) expressed for the levels of variables and a specification which is not regime dependent. The standard NKPC arises as a special case. Using non-linear simulation and estimation techniques, we then demonstrate the importance of regime dependence in inflation dynamics and show that standard NKPCs are mis-specified even in low-inflation regimes. We further detect strong intrinsic persistence in historical US inflation.
Number of Pages in PDF File: 26Accepted Paper Series
Date posted: October 25, 2010
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