Staggered Price and Wage Setting in Macroeconomics / John B. Taylor.

By:

Taylor, John B

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w6754.Publication details: Cambridge, Mass. National Bureau of Economic Research 1998.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper reviews the role of temporary price and wage rigidities in explaining the dynamic relationship between money, real output, and inflation. It summarizes microeconomic data on price and wage setting behavior, and argues that staggered price and wage setting models provide the most satisfactory match with the data. Research in this area has been very active in the 1990's with a remarkable number of studies using, estimating, or testing models of staggered price and wage setting. A new generation of econometric models incorporating staggered price and wage setting with rational expectations has been built. Researchers have begun to incorporate staggered wage and price setting into real business cycle models. Close links have been discovered between the parameters of people's utility functions and the parameters of price and wage setting equations. There is now a debate about whether standard calibrations of utility functions prevent staggered price models, at least those with frequent price changes, from explaining long persistence of real output. There is much to be discovered from these debates and from the future research they stimulate.

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October 1998.

This paper reviews the role of temporary price and wage rigidities in explaining the dynamic relationship between money, real output, and inflation. It summarizes microeconomic data on price and wage setting behavior, and argues that staggered price and wage setting models provide the most satisfactory match with the data. Research in this area has been very active in the 1990's with a remarkable number of studies using, estimating, or testing models of staggered price and wage setting. A new generation of econometric models incorporating staggered price and wage setting with rational expectations has been built. Researchers have begun to incorporate staggered wage and price setting into real business cycle models. Close links have been discovered between the parameters of people's utility functions and the parameters of price and wage setting equations. There is now a debate about whether standard calibrations of utility functions prevent staggered price models, at least those with frequent price changes, from explaining long persistence of real output. There is much to be discovered from these debates and from the future research they stimulate.