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A unified framework for understanding and comparing dynamic wage and price-setting models

Author

Listed:
  • Dixon, H. D.
Abstract
This paper argues that the cross-sectional approach to durations is essential to understand nominal rigidity because this captures the fact that price-spells are generated by firms' price-setting behavior. Since the distribution of durations is dominated by a proliferation of short contracts, the cross-sectional measure corrects for this by length-biased sampling. Modelling the price-spell durations in this way enables us to see how Taylor, Calvo and their generalizations relate to each other, and enable us to compare price-setting behavior for a given distribution of durations. We also show how the micro-data can be directly related to the macroeconomic pricing models in this setting.

Suggested Citation

  • Dixon, H. D., 2009. "A unified framework for understanding and comparing dynamic wage and price-setting models," Working papers 257, Banque de France.
    • Handle: RePEc:bfr:banfra:257
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    Cited by:

    1. Huw Dixon & Hervé Le Bihan, 2012. "Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications," Economic Journal, Royal Economic Society, vol. 122(560), pages 532-554, May.
    2. Emmanuelle Lavallée & Vincent Vicard, 2013. "National borders matterwhere one draws the lines too," Canadian Journal of Economics, Canadian Economics Association, vol. 46(1), pages 135-153, February.
    3. Dixon, Huw & Kara, Engin, 2006. "Understanding inflation persistence: a comparison of different models," Working Paper Series 672, European Central Bank.
    4. Dixon, Huw & Seaton, Johathan S. & Waterson, Michael, 2014. "Price Flexibility In British Supermarkets: Moderation And Recession," Economic Research Papers 270246, University of Warwick - Department of Economics.

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    More about this item

    Keywords

    Price-spell; steady state; hazard rate; Calvo; Taylor.;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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