Staggered Price Setting and Real Rigidities

30 Pages Posted: 30 Apr 1998

See all articles by Michael T. Kiley

Michael T. Kiley

Board of Governors of the Federal Reserve System

Date Written: August 1997

Abstract

This paper emphasizes the notion that model features that contribute to endogenous price rigidity under staggered price setting lower the elasticity of marginal cost with respect to output, and these same model features tend to generate equilibrium indeterminacy, or "sunspot fluctuations," under price flexibility. Using this insight, staggered price setting is shown to imply persistent output responses to monetary shocks for certain parameterizations of one and two sector models with small increasing returns or countercyclical markups, and other model features that would contribute to persistence are discussed.

JEL Classification: E32, E10, E31

Suggested Citation

Kiley, Michael T., Staggered Price Setting and Real Rigidities (August 1997). FEDS No. 97-46. Available at SSRN: https://ssrn.com/abstract=82028 or http://dx.doi.org/10.2139/ssrn.82028

Michael T. Kiley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

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