Staggered Contracts and Business Cycle Persistence
1999-01
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Staggered Contracts and Business Cycle Persistence
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1999-01
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Center for Economic Research, Department of Economics, University of Minnesota
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Working Paper
Abstract
Staggered price and staggered wage mechanisms are commonly viewed similar in
generating persistent real effects of monetary shocks. In this paper, we distinguish
these two mechanisms with individuals' optimizing behavior being explicitly taken into
account. We show that, although the dynamic price and wage setting equations are
alike, a key parameter governing persistence in these two equations is linked to the
underlying preferences and technologies in very different ways. Consequently, the two
mechanisms have quite different implications on persistence. While the staggered price
mechanism by itself is incapable, the staggered wage mechanism has a much greater
potential of generating persistence.
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Previously Published Citation
Huang, K.X. and Liu, Z., (1999), "Staggered Contracts and Business Cycle Persistence", Discussion Paper No. 305, Center for Economic Research, Department of Economics, University of Minnesota.
Suggested citation
Huang, Kevin Xiaodong; Liu, Zheng. (1999). Staggered Contracts and Business Cycle Persistence. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/55855.
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