DP5658 Monetary Persistence, Imperfect Competition and Staggering Complementarities
|Author(s):||Christian Merkl, Dennis J. Snower|
|Publication Date:||May 2006|
|Keyword(s):||monetary persistence, monetary policy, price staggering, wage staggering|
|JEL(s):||E40, E50, E52|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5658|
This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are highly complementary in generating monetary persistence. We do so by proposing the new measure "quantitative persistence," after discussing weaknesses of the "contract multiplier," which is generally used to compare persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to explore their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labour and product markets. We show that the conventional wisdom that wage staggering can generate more persistence than price staggering does not necessarily hold.