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Huw Dixon
- 29 September 2006
- WORKING PAPER SERIES - No. 676Details
- Abstract
- This paper shows how any steady state distribution of ages and related hazard rates can be represented as a distribution across firms of completed contract lengths. The distribution is consistent with a Generalised Taylor Economy or a Generalised Calvo model with duration dependent reset probabilities. Equivalent distributions have different degrees of forward lookingness and imply different behaviour in response to monetary shocks. We also interpret data on the proportions of firms changing price in a period, and the resultant range of average contract lengths.
- JEL Code
- E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
- 1 September 2006
- WORKING PAPER SERIES - No. 672Details
- Abstract
- This paper adopts the Impulse-Response methodology to understand inflation persistence. It has often been argued that existing models of pricing fail to explain the persistence that we observe. We adopt a common general framework which allows for an explicit modelling of the distribution of contract lengths and for different types of price setting. In particular, we find that allowing for a distribution of contract lengths can yield a more plausible explanation of inflation persistence than indexation.
- JEL Code
- E17 : Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
- 27 May 2005
- WORKING PAPER SERIES - No. 489Details
- Abstract
- In this paper we develop the Generalized Taylor Economy (GTE) in which there are many sectors with overlapping contracts of different lengths. In economies with the same average contract length, monetary shocks will be more persistent when longer contracts are present. We are able to solve the puzzle of why Calvo contracts appear to be more persistent than simple Taylor contracts: it arises because of the distribution of contract lengths. When we choose a GTE with the same distribution of completed contract lengths as the Calvo, the economies behave in a similar manner.
- JEL Code
- E50 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→General
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy