Calvo price-setting framework

E915169

New Keynesian pricing assumption macroeconomic model price-setting framework

The Calvo price-setting framework is a macroeconomic model of staggered price adjustment in which only a random fraction of firms can change their prices in any given period, generating nominal rigidity and realistic inflation dynamics.

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Statements (44)

Predicate	Object
instanceOf	New Keynesian pricing assumption ⓘ macroeconomic model ⓘ price-setting framework ⓘ
assumes	geometric distribution of price durations ⓘ
contrastsWith	Taylor staggered contracts ⓘ state-dependent pricing models ⓘ
enables	tractable log-linearization around steady state ⓘ
field	macroeconomics ⓘ monetary economics ⓘ
hasKeyAssumption	a fixed fraction of firms cannot adjust prices in each period ⓘ firms are monopolistic competitors ⓘ firms choose prices to maximize expected discounted profits ⓘ households have rational expectations ⓘ nominal prices are set in terms of money ⓘ probability of being allowed to reset price is independent of firm history ⓘ
hasKeyFeature	constant probability of price adjustment each period ⓘ forward-looking inflation dynamics ⓘ fraction of firms keep prices fixed each period ⓘ menu-cost-free nominal rigidity ⓘ microfoundations for the New Keynesian Phillips curve ⓘ nominal rigidity ⓘ price dispersion across firms ⓘ random opportunity for price adjustment ⓘ staggered price adjustment ⓘ time-dependent pricing ⓘ
implies	New Keynesian Phillips curve NERFINISHED ⓘ average duration of prices is inverse of adjustment probability ⓘ inflation depends on expected future inflation ⓘ inflation depends on real marginal cost or output gap ⓘ
influenced	modern central bank macroeconomic models ⓘ
introducedBy	Guillermo A. Calvo NERFINISHED ⓘ
introducedIn	1983 ⓘ
mathematicallyCharacterizedBy	Calvo parameter for price stickiness ⓘ hazard rate of price adjustment ⓘ
namedAfter	Guillermo A. Calvo NERFINISHED ⓘ
relatedConcept	Phillips curve NERFINISHED ⓘ dynamic stochastic general equilibrium models ⓘ monetary policy transmission ⓘ nominal rigidity ⓘ sticky prices ⓘ
usedIn	New Keynesian DSGE models NERFINISHED ⓘ business cycle models ⓘ inflation dynamics studies ⓘ monetary policy analysis ⓘ

Referenced by (1)

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Monetary Policy, Inflation, and the Business Cycle → usesModelType → Calvo price-setting framework ⓘ