TY  - JOUR
AU  - Eichenbaum,Martin
AU  - Fisher,Jonas D.M.
TI  - Evaluating the Calvo Model of Sticky Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10617
PY  - 2004
Y2  - July 2004
UR  - http://www.nber.org/papers/w10617
L1  - http://www.nber.org/papers/w10617.pdf
N1  - Author contact info:
Martin S. Eichenbaum
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8232
Fax: 847/491-7001
E-Mail: eich@northwestern.edu

Jonas Fisher
Economic Research Department
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL  60604
Tel: 312/312-8177
Fax: NA
E-Mail: jfisher@frbchi.org
AB  - Can variants of the classic Calvo (1983) model of sticky prices account for the statistical behavior of post-war US inflation? We develop and test versions of the model for which the answer to this question is yes. We then investigate whether these models imply plausible degrees of inertia in price setting behavior by firms. We find that they do, but only if we depart from two auxiliary assumptions made in standard expositions of the Calvo model. These assumptions are that monopolistically competitive firms face a constant elasticity of demand and capital can be instantaneously reallocated after a shock. When we modify these assumptions our model is consistent with the view that firms re-optimize prices
ER  -