TY  - JOUR
AU  - Taylor,John B.
TI  - Staggered Price and Wage Setting in Macroeconomics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6754
PY  - 1998
Y2  - October 1998
UR  - http://www.nber.org/papers/w6754
L1  - http://www.nber.org/papers/w6754.pdf
N1  - Author contact info:
John B. Taylor
Herbert Hoover Memorial Building
Stanford University
Stanford, CA 94305-6010
Tel: 650/723-9677
Fax: 650-723-1687
E-Mail: John.Taylor@stanford.edu
AB  - This paper reviews the role of temporary price and wage rigidities in explaining the dynamic relationship between money, real output, and inflation.  It summarizes microeconomic data on price and wage setting behavior, and argues that staggered price and wage setting models provide the most satisfactory match with the data. Research in this area has been very active in the 1990's with a remarkable number of studies using, estimating, or testing models of staggered price and wage setting.  A new generation of econometric models incorporating staggered price and wage setting with rational expectations has been built.  Researchers have begun to incorporate staggered wage and price setting into real business cycle models.  Close links have been discovered between the parameters of people's utility functions and the parameters of price and wage setting equations. There is now a debate about whether standard calibrations of utility functions prevent staggered price models, at least those with frequent price changes, from explaining long persistence of real output.  There is much to be discovered from these debates and from the future research they stimulate.
ER  -