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Journal ArticleDOI

Staggered prices in a utility-maximizing framework

01 Sep 1983-Journal of Monetary Economics (North-Holland)-Vol. 12, Iss: 3, pp 383-398
TL;DR: In this article, the authors developed a model of staggered prices along the lines of Phelps (1978) and Taylor (1979, 1980), but utilizing an analytically more tractable price-setting technology.
About: This article is published in Journal of Monetary Economics.The article was published on 1983-09-01. It has received 8580 citations till now. The article focuses on the topics: Nominal rigidity & Taylor rule.
Citations
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Journal ArticleDOI
TL;DR: This article analyzed the behavior of exchange rates, reserves, monetary aggregates, interest rates, and commodity prices across 154 exchange rate arrangements to assess whether official labels' provide an adequate representation of actual country practice.
Abstract: In recent years, many countries have suffered severe financial crises, producing a staggering toll on their economies, particularly in emerging markets. One view blames fixed exchange rates-- soft pegs'--for these meltdowns. Adherents to that view advise countries to allow their currency to float. We analyze the behavior of exchange rates, reserves, the monetary aggregates, interest rates, and commodity prices across 154 exchange rate arrangements to assess whether official labels' provide an adequate representation of actual country practice. We find that, countries that say they allow their exchange rate to float mostly do not--there seems to be an epidemic case of fear of floating.' Since countries that are classified as having a free or a managed float mostly resemble noncredible pegs--the so-called demise of fixed exchange rates' is a myth--the fear of floating is pervasive, even among some of the developed countries. We present an analytical framework that helps to understand why there is fear of floating.

1,433 citations

Journal ArticleDOI
TL;DR: This article developed a new model of the way that wage stickiness affects unemployment and showed that stickiness arises in an economic equilibrium and satisfies the condition that no worker-employer pair has an unexploited opportunity for mutual improvement.
Abstract: Following a recession, the aggregate labor market is slack-employment remains below normal and recruiting efforts of employers, as measured by help-wanted advertising and vacancies, are low. A model of matching friction explains the qualitative responses of the labor market to adverse shocks, but requires implausibly large shocks to account for the magnitude of observed fluctuations. The incorporation of wage stickiness vastly increases the sensitivity of the model to driving forces. I develop a new model of the way that wage stickiness affects unemployment. The stickiness arises in an economic equilibrium and satisfies the condition that no worker-employer pair has an unexploited opportunity for mutual improvement. Sticky wages neither interfere with the efficient formation of employment matches nor cause inefficient job loss. Thus the model provides an answer to the fundamental criticism previously directed at sticky-wage models of fluctuations.

1,426 citations


Cites background from "Staggered prices in a utility-maxim..."

  • ...Unlike stickiness portrayed as an essentially arbitrary restriction on the ability to set wages or prices—such as the well-known model for prices of Guillermo Calvo (1983)—the stickiness considered here arises within an economic equilibrium....

    [...]

ReportDOI
TL;DR: This article examined the frequency of price changes for 350 categories of goods and services covering about 70 percent of consumer spending, on the basis of unpublished data from the Bureau of Labor Statisti...
Abstract: We examine the frequency of price changes for 350 categories of goods and services covering about 70 percent of consumer spending, on the basis of unpublished data from the Bureau of Labor Statisti...

1,417 citations

ReportDOI
TL;DR: In this article, the authors present a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap.
Abstract: We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap. We use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy: domestic inflation and CPI-based Taylor rules, and an exchange rate peg. We show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail. We also discuss a special case for which domestic inflation targeting constitutes the optimal policy, and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules.

1,311 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated the ability of nominal price rigidity to explain the co-movement of inflation with the cyclical component of output observed in the post-war US data and demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models.

1,299 citations

References
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Book
01 Jun 1984
TL;DR: In this article, the Routh-Hurwitz problem of singular pencils of matrices has been studied in the context of systems of linear differential equations with variable coefficients, and its applications to the analysis of complex matrices have been discussed.
Abstract: Volume 2: XI. Complex symmetric, skew-symmetric, and orthogonal matrices: 1. Some formulas for complex orthogonal and unitary matrices 2. Polar decomposition of a complex matrix 3. The normal form of a complex symmetric matrix 4. The normal form of a complex skew-symmetric matrix 5. The normal form of a complex orthogonal matrix XII. Singular pencils of matrices: 1. Introduction 2. Regular pencils of matrices 3. Singular pencils. The reduction theorem 4. The canonical form of a singular pencil of matrices 5. The minimal indices of a pencil. Criterion for strong equivalence of pencils 6. Singular pencils of quadratic forms 7. Application to differential equations XIII. Matrices with non-negative elements: 1. General properties 2. Spectral properties of irreducible non-negative matrices 3. Reducible matrices 4. The normal form of a reducible matrix 5. Primitive and imprimitive matrices 6. Stochastic matrices 7. Limiting probabilities for a homogeneous Markov chain with a finite number of states 8. Totally non-negative matrices 9. Oscillatory matrices XIV. Applications of the theory of matrices to the investigation of systems of linear differential equations: 1. Systems of linear differential equations with variable coefficients. General concepts 2. Lyapunov transformations 3. Reducible systems 4. The canonical form of a reducible system. Erugin's theorem 5. The matricant 6. The multiplicative integral. The infinitesimal calculus of Volterra 7. Differential systems in a complex domain. General properties 8. The multiplicative integral in a complex domain 9. Isolated singular points 10. Regular singularities 11. Reducible analytic systems 12. Analytic functions of several matrices and their application to the investigation of differential systems. The papers of Lappo-Danilevskii XV. The problem of Routh-Hurwitz and related questions: 1. Introduction 2. Cauchy indices 3. Routh's algorithm 4. The singular case. Examples 5. Lyapunov's theorem 6. The theorem of Routh-Hurwitz 7. Orlando's formula 8. Singular cases in the Routh-Hurwitz theorem 9. The method of quadratic forms. Determination of the number of distinct real roots of a polynomial 10. Infinite Hankel matrices of finite rank 11. Determination of the index of an arbitrary rational fraction by the coefficients of numerator and denominator 12. Another proof of the Routh-Hurwitz theorem 13. Some supplements to the Routh-Hurwitz theorem. Stability criterion of Lienard and Chipart 14. Some properties of Hurwitz polynomials. Stieltjes' theorem. Representation of Hurwitz polynomials by continued fractions 15. Domain of stability. Markov parameters 16. Connection with the problem of moments 17. Theorems of Markov and Chebyshev 18. The generalized Routh-Hurwitz problem Bibliography Index.

9,334 citations

Journal ArticleDOI
TL;DR: In this article, the authors show that staggered wage contracts as short as 1 year are capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States.
Abstract: Staggered wage contracts as short as 1 year are shown to be capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States. A...

2,525 citations

Journal ArticleDOI
TL;DR: In this paper, alternative monetary policies are analyzed in an ad hoc macroeconomic model in which the public's expectations about prices are rational, and it turns out that the probility distribution of output is independent of the particular deterministic money supply rule in effect.
Abstract: Alternative monetary policies are analyzed in an ad hoc macroeconomic model in which the public's expectations about prices are rational. The ad hoc model is one in which there is long-run neutrality, since it incorporates the aggregate supply schedule proposed by Lucas. Following Poole, the paper studies whether pegging the interest rate or pegging the money supply period by period minimizes an ad hoc quadratic loss function. It turns out that the probility distribution of output--dispersion as well as mean--is independent of the particular deterministic money supply rule in effect, and that under an interest rate rule the price level is indeterminate.

1,888 citations

Book
01 Jul 1970
TL;DR: In this paper, a theory of "controllability" is developed and injected into public economics and growth models to analyze optimal public expenditures in the context of modern growth theory, and a model of optimal growth with public capital is proposed.
Abstract: This book, co-authored by the Nobel-prized economist, Kenneth Arrow, considers public expenditures in the context of modern growth theory. It analyzes optimal growth with public capital. A theory of 'controllability' is developed and injected into public economics and growth models. Originally published in 1970

1,006 citations