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MONETARY PERSISTENCE, IMPERFECT COMPETITION, AND STAGGERING COMPLEMENTARITIES

Published online by Cambridge University Press:  01 February 2009

Christian Merkl  and
Dennis Snower
Christian Merkl*
Affiliation:
Kiel Institute for the World Economy (IfW)Christian-Albrechts-University Kiel and IZA
Dennis Snower
Affiliation:
Kiel Institute for the World EconomyChristian-Albrechts-University Kiel, CEPRCESifo and IZA
*
Address correspondence to: Christian Merkl, Kiel Institute for the World Economy, Duesternbrooker Weg 120, 24105 Kiel, Germany; e-mail: christian.merkl@ifw-kiel.de.
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Abstract

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 complementary in generating monetary persistence. We do so by proposing the new measure of “quantitative inertia,” after discussing weaknesses of the “contract multiplier,” a standard measure of monetary persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to investigate 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 labor and product markets. We show that the conventional finding that wage staggering generates more persistence than price staggering holds under homogeneous capital accumulation. Under firm-specific capital, wage staggering generates more persistence only when the labor market is sufficiently competitive relative to the product market.

Keywords

Monetary PersistencePrice StaggeringWage StaggeringFirm-Specific Capital
Type
Articles
Information
Macroeconomic Dynamics , Volume 13 , Issue 1 , February 2009 , pp. 81 - 106
Copyright
Copyright © Cambridge University Press 2009

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