Ascari, G. and Castelnuovo, E. and Rossi, L. (2011) Calvo vs. Rotemberg in a trend inflation world:An empirical investigation. Journal of Economic Dynamics and Control, 35 (11). pp. 1852-1867. ISSN 0165-1889
Full text not available from this repository.Abstract
This paper estimates and compares New-Keynesian DSGE monetary models of the business cycle derived under two different pricing schemes-Calvo (1983) and Rotemberg (1982)-under a positive trend inflation rate. Our empirical findings (i) support trend inflation as an empirically relevant feature of the U.S. great moderation; (ii) provide evidence in favor of the statistical superiority of the Calvo setting; (iii) point to a substantially lower degree of price indexation under Calvo. We show that the superiority of the Calvo model is due to the restrictions imposed by such a pricing scheme on the aggregate demand equation.