Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counter-parts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation. Terms of use: Documents in EconStor mayJEL-Code: E31, E32, E52, J30.

What We can Learn About the Behaviour of Firms from the Average Monthly Frequency of Price‐Changes: An Application to the UK CPI Data

“…The purpose of this paper was to explore what we can learn about the cross‐sectional distribution from the frequency data. The cross‐sectional distribution is also required if we are to calibrate price‐setting on the economy as a Generalized Taylor economy (GT) where we consider the economy as made up of price‐setters who set prices for different durations which are known ex ante (Taylor, , Dixon and Le Bihan, ). What is the cost of losing information by summarizing the distribution of price changes based on the frequency data?…”

“…We also calibrate the models for quarterly and monthly versions. The pricing models used are the Generalized Taylor (GT) and Generalized Calvo (GC) as in Dixon and Le Bihan (), which are both consistent with any micro distributions of durations and can be calibrated both to the estimated distribution and the hypothetical distributions under both the Bernoulli–Calvo hypothesis and the theoretical minimum duration corresponding to Proposition 1.…”

Heterogeneity in Wage Setting Behavior in a New-Keynesian Model

“…The authors show that this extended DSGE model generates impulse responses that quantitatively match those found in the actual data. In contrast to Olivei and Tenreyro (2007), where the seasonal heterogeneity is addressed, Dixon and Bihan (2012) investigate the effects of heterogeneity in the rigidity of wages across industries. Using data from France, the authors calibrate two independent variations for nominal rigidities: a so-called Generalized Taylor Economy (GTE), where firms have wage spells of different durations, and a Generalized Calvo Economy (GCE), where firms have different probabilities of resetting their wage (price).…”

Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications

“…Deriving the Reset Wage in a GT Economy Starting from (16), we first substitute for w à tþk using (15), and then substitute for n(h) tþk using (10) and noting that w(h) tþk ¼ x it for k ¼ 0,. . .,(i À 1): 21 Dixon and Le Bihan (2011).…”

“…Dixon and Le Bihan (2011).2012 ] 551G E N E R A L T A Y L O R A N D C A L V O F O R P R I C E S A N D W A G E S Ó 2012The Author(s). The Economic Journal Ó 2012 Royal Economic Society.…”