A Semi-Classical Model of Price Level Adjustment

44 Pages Posted: 16 May 2011

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: April 1994

Abstract

This paper investigates the theoretical and empirical properties of a model of aggregate supply behavior that was introduced in the 1970s but has received inadequate attention. The model postulates that price changes occur so as to gradually eliminate discrepancies between actual and market-clearing values and to reflect expected changes in market-clearing values. Its implications are more 'classical' than most alternative formulations that reflect gradual price adjustment. Empirical results, which utilize a proxy for market-clearing output that is a function of fixed capital and the real price of oil, are moderately encouraging but not entirely supportive.

Suggested Citation

McCallum, Bennett T., A Semi-Classical Model of Price Level Adjustment (April 1994). NBER Working Paper No. w4706, Available at SSRN: https://ssrn.com/abstract=1840247

Bennett T. McCallum (Contact Author)

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