Working Paper: NBER ID: w22356
Authors: John B. Taylor
Abstract: After many years, many critiques, and many variations, the staggered wage and price setting model is still the most common method of incorporating nominal rigidities into empirical macroeconomic models used for policy analysis. The aim of this chapter is to examine and reassess the staggered wage and price setting model. The chapter updates and expands on my chapter in the 1999 Handbook of Macroeconomics which reviewed key papers that had already spawned a vast literature. It is meant to be both a survey and user-friendly exposition organized around a simple “canonical” model. It provides a guide to the recent explosion of microeconomic empirical research on wage and price setting, examines central controversies, and reassesses from a longer perspective the advantages and disadvantages of the model as it has been applied in practice. An important question for future research is whether staggered price and wage setting will continue to be the model of choice or whether it needs to be replaced by a new paradigm.
Keywords: No keywords provided
JEL Codes: E3; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| staggered wage and price setting model (E64) | nominal rigidities (D50) |
| nominal rigidities (D50) | economic dynamics (P42) |
| staggered wage and price setting model (E64) | persistence of wage and price adjustments (E64) |
| staggered wage and price setting model (E64) | interactions between monetary policy and wage/price settings (E64) |
| staggered wage and price setting model (E64) | economic stability (E63) |
| staggered wage and price setting model (E64) | aggregate price levels (E30) |
| staggered wage and price setting model (E64) | output (C67) |