TY  - JOUR
AU  - Chari,V. V.
AU  - Kehoe,Patrick J.
AU  - McGrattan,Ellen R.
TI  - Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5809
PY  - 1996
Y2  - October 1996
UR  - http://www.nber.org/papers/w5809
L1  - http://www.nber.org/papers/w5809.pdf
N1  - Author contact info:
Varadarajan V. Chari
Department of Economics
University of Minnesota
1035 Heller Hall
271 - 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-5171
Fax: (612) 624-0209
E-Mail: varadarajanvchari@gmail.com

Patrick Kehoe
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN  55480-0291
Tel: 612/204-5525
Fax: 612/204-5515
E-Mail: pkehoe@res.mpls.frb.fed.us

Ellen McGrattan
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
Tel: 612/204-5523
Fax: 612/204-5515
E-Mail: erm@mcgrattan.mpls.frb.fed.us
AB  - The purpose of this paper is to construct a quantitative equilibrium model with price setting and use it to ask whether staggered price setting can generate persistent output fluctuations following monetary shocks.  We construct a business cycle version of a standard sticky price model in which imperfectly competitive firms set nominal prices in a staggered fashion.  We assume that prices are exogenously sticky for a short period of time.  Persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices very much when they can do so.  We find the amount of endogenous stickiness to be small.  As a result, we find that such a model cannot generate persistent movements in output following monetary shocks.
ER  -