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Research output: Contribution to Journal/Magazine › Journal article › peer-review
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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 -