Template-Type: ReDIF-Paper 1.0
Author-Name: Rossi Lorenza
Author-X-Name-First: Lorenza
Author-X-Name-Last: Rossi
Author-Email: lorenza.rossi@unicatt.it
Author-Workplace-Name: DISCE, Universitą Cattolica


Author-Name: Guido Ascari
Author-X-Name-First: Guido
Author-X-Name-Last: Ascari

Author-Workplace-Name: Universitą di Pavia


Title: Long-run Phillips Curve and Disinfation Dynamics: Calvo vs. Rotemberg Price Setting
Abstract: There is widespread agreement that the two most widely used
pricing assumptions in the New-Keynesian literature, i.e., Calvo and
Rotemberg price-setting mechanisms, deliver equivalent dynamics. We
show that, instead, they entail a very di¤erent dynamics of adjustment
after a disin?ation, once non linear simulations are employed. In the
Calvo model disin?ation implies output gains, while in the Rotemberg
model a disin?ation experiment implies output losses. We show that
this is due to the di¤erent wedges created by the nominal rigidities in
the two models: between output and hours in the Calvo model, while
between output and consumption in the Rotemberg model. More-
over, unlike the Calvo model, in the Rotemberg model real wage rigidi-
ties cause a signi?cant output slump along the adjustment path, thus
restoring a dynamics in line both with the conventional wisdom and
the empirical evidence.

Length: nn pages 28
Creation-Date: 2008-06

File-URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0082.pdf
File-Format: Application/pdf
File-Function: First version, 2008
Number: ief0082
Classification-JEL: G3
Keywords: Disinfation, Sticky Prices, Nonlinearities
Handle: RePEc:ctc:serie3:ief0082