A Phillips curve with an Ss foundation

Mark Gertler, John Leahy

    Research output: Contribution to journalArticle

    Abstract

    We develop an analytically tractable Phillips curve based on state-dependent pricing. We consider a local approximation around a zero inflation steady state and introduce infrequent idiosyncratic shocks. The resulting Phillips curve is a simple variant of the conventional time-dependent Calvo formulation with important differences. First, the model is able to match the micro evidence on the magnitude and timing of price adjustments. Second, our state-dependent model exhibits greater flexibility in the aggregate price level than the time-dependent model. With real rigidities present, however, our model can exhibit nominal stickiness similar to a conventional time-dependent model.

    Original languageEnglish (US)
    Pages (from-to)533-572
    Number of pages40
    JournalJournal of Political Economy
    Volume116
    Issue number3
    DOIs
    StatePublished - Jun 2008

    ASJC Scopus subject areas

    • Economics and Econometrics

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