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On Equilibrium Determinacy in New Keynesian Models with Staggered Wage and Price Setting
1Bielefeld University, firstname.lastname@example.org
2Christian-Albrechts-University in Kiel, email@example.com
3Macroeconomic Policy Institute (IMK), firstname.lastname@example.org
Citation Information: The B.E. Journal of Macroeconomics. Volume 8, Issue 1, Pages –, ISSN (Online) 1935-1690, DOI: 10.2202/1935-1690.1802, December 2008
- Published Online:
This paper shows that an analytical analysis of the determinacy properties of the New Keynesian model with both staggered wages and prices is possible, despite the high dimensional nature (4D) of this model, if it is appropriately reformulated in continuous time. Our analysis supports Galí's (2008) numerical findings on the determinacy frontier and its reformulated Taylor principle, where a generalized Taylor rule that employs a weighted combination of wage and price inflation as a measure of the inflation gap is used.