TY - JOUR

T1 - Calvo vs. Rotemberg in a trend inflation world

T2 - An empirical investigation

AU - Ascari, G.

AU - Castelnuovo, E.

AU - Rossi, L.

PY - 2011/11/30

Y1 - 2011/11/30

N2 - This paper estimates and compares New-Keynesian DSGE monetary models of the business cycle derived under two different pricing schemes-Calvo (1983) and Rotemberg (1982)-under a positive trend inflation rate. Our empirical findings (i) support trend inflation as an empirically relevant feature of the U.S. great moderation; (ii) provide evidence in favor of the statistical superiority of the Calvo setting; (iii) point to a substantially lower degree of price indexation under Calvo. We show that the superiority of the Calvo model is due to the restrictions imposed by such a pricing scheme on the aggregate demand equation.

AB - This paper estimates and compares New-Keynesian DSGE monetary models of the business cycle derived under two different pricing schemes-Calvo (1983) and Rotemberg (1982)-under a positive trend inflation rate. Our empirical findings (i) support trend inflation as an empirically relevant feature of the U.S. great moderation; (ii) provide evidence in favor of the statistical superiority of the Calvo setting; (iii) point to a substantially lower degree of price indexation under Calvo. We show that the superiority of the Calvo model is due to the restrictions imposed by such a pricing scheme on the aggregate demand equation.

KW - Bayesian estimations

KW - Calvo

KW - Rotemberg

KW - Trend inflation

U2 - 10.1016/j.jedc.2011.06.002

DO - 10.1016/j.jedc.2011.06.002

M3 - Journal article

VL - 35

SP - 1852

EP - 1867

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

IS - 11

ER -