EBSLG

 

 
European Business Schools Librarian's Group
Home About Series Subject/JEL codes Advanced Search
Kiel Institute for World Economics Kiel Working Papers, Kiel Institute for World Economics

No 1361:
Basic Calvo and P-Bar Models of Price Adjustment: A Comparison

Bennett T. McCallum

Abstract: It is clear that at present various versions of the Calvo (1983) model of price adjustment are dominant in monetary policy analysis—see, e.g., Woodford (2003). This is true despite well-known criticisms including Mankiw (2001) or Mankiw and Reis (2002) and the well-documented need for the addition of ad-hoc features if actual inflation and output data are to be matched. Accordingly, there is ample reason, to give consideration to alternative models. In this paper, a new look is given to the P-bar model utilized by McCallum and Nelson (1999a, 1999b), based on previous work by Mussa (1981) and others. Relative to the Calvo model, the P-bar specification has three significant advantages: it satisfies the strict version of the natural rate hypothesis; it relies on costs of adjusting output, which are more tangible than menu costs of changing prices; and its basic version produces more realistic autocorrelation patterns than does the basic Calvo specification. The present paper develops these comparisons more completely and systematically than in previous work.

31 pages, June 2007

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Downloadable files:

kap1361.pdf    PDF-file
Download Statistics


Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design Joakim Ekebom

Handle: RePEc:kie:kieliw:1361 This page was generated on 2015-03-29 21:03:05