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ARROW–CALVO PRICE STAGGERING
Author(s) -
MCADAM PETER,
WILLMAN ALPO
Publication year - 2010
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02156.x
Subject(s) - phillips curve , economics , new keynesian economics , merge (version control) , inflation (cosmology) , econometrics , keynesian economics , deflation , arrow , price setting , mathematical economics , monetary policy , microeconomics , physics , computer science , theoretical physics , information retrieval , programming language
We merge Arrow and Calvo pricing themes leading to a price‐resetting signal dependent on inflation and competitiveness. This allows us to tractably analyse state‐dependent issues and to develop a New Keynesian Phillips curve (NKPC) expressed for the levels of variables and a specification which is not regime dependent. The standard NKPC arises as a special case. Using non‐linear simulation and estimation techniques, we then demonstrate the importance of regime dependence in inflation dynamics and show that standard NKPCs are mis‐specified even in low‐inflation regimes. We further detect strong intrinsic persistence in historical US inflation.