Inflation Dynamics

28 Pages Posted: 4 Mar 2002

See all articles by Luca Guerrieri

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies

Date Written: December 2001

Abstract

Gali and Gertler (1999) are the first to find that the baseline sticky price model fits the U.S. data well. I examine the robustness of their estimates along two dimensions. First, I show that their IV estimates are not robust to an alternative normalization of the moment condition being estimated. However, when using a Monte Carlo study to investigate small-sample properties, I show that the normalization chosen by Gali and Gertler (1999) yields a superior estimator. Second, I check whether or not the proportion of backward-looking firms augmenting the baseline model to fit the data is dependent on the type of contracting assumed. I find that using Taylor-style contracts, rather than Calvo-style contracts, this proportion jumps to 50 percent.

Keywords: Phillips Curve, Staggered Contracts, Monte Carlo

Suggested Citation

Guerrieri, Luca, Inflation Dynamics (December 2001). FRB International Finance Discussion Paper No. 715. Available at SSRN: https://ssrn.com/abstract=302017 or http://dx.doi.org/10.2139/ssrn.302017

Luca Guerrieri (Contact Author)

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2550 (Phone)

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