Calvo vs. Rotemberg in a trend inflation world:An empirical investigation

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

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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.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Economic Dynamics and Control
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2600/2604
Subjects:
ID Code:
160498
Deposited By:
Deposited On:
08 Oct 2021 12:35
Refereed?:
Yes
Published?:
Published
Last Modified:
08 Oct 2021 12:35