We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
DOES CALVO MEET ROTEMBERG AT THE ZERO LOWER BOUND?
- Authors
Miao, Jianjun; Ngo, Phuong V.
- Abstract
This paper compares the conventional Calvo and Rotemberg price adjustments at the zero lower bound (ZLB) on nominal interest rates. Although the two pricing mechanisms are equivalent to a first-order approximation around the zero-inflation steady state, they produce very different results, based on a fully-nonlinear method. Specifically, the nominal interest rate hits the ZLB more frequently in the Calvo model than in the Rotemberg model. At the ZLB, deflation is larger and recessions are more severe in the Calvo model. The main reason for the difference in results is that price adjustment costs show up in the resource constraints in the Rotemberg. When they are rebated to the household, the two models behave similarly.
- Subjects
INTEREST rates; PRICE deflation; REBATES
- Publication
Macroeconomic Dynamics, 2021, Vol 25, Issue 4, p1090
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100519000464