Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts

No E2007/1, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We develop the Generalized Taylor Economy (GTE) in which there are many sectors with overlapping contracts of different lengths. In economies with the same average contract length, monetary shocks will be more persistent when longer contracts are present. Using the Bils-Klenow distribution of contract lengths, we find that the corresponding GTE tracks the US data well. When we choose a GTE with the same distribution of completed contract lengths as the Calvo, the economies behave in a similar manner.

Keywords: Persistence; Taylor contract; Calvo (search for similar items in EconPapers)
JEL-codes: E24 E32 E50 E52 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2007-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (12)

Forthcoming in European Economic Review

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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2007/1

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