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New Keynesian microfundations revisited: a generalised Calvo-Taylor model and the desirability of inflation vs. price level targeting

Abstract:

Optimal monetary policy is sensitive to the Phillips curve specification used to represent the dynamics of inflation and output. Most recent literature has used a new Keynesian Phillips Curve based on Calvo pricing. This paper shows that this workhorse model is not robust to relatively minor changes in its microfoundations, in particular allowing for time varying probabilities of a firm being able to reset its price. We derive a general model that nests Calvo and the Taylor staggering model a...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
Department of Economics Discussion Paper Series
Publication date:
2002-07-01
Paper number:
109
Keywords:
Pubs id:
1144312
Local pid:
pubs:1144312
Deposit date:
2020-12-15

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