TY - UNPB
T1 - Second Order Accurate Approximation to the Rotemberg Model Around a Distorted Steady State
AU - Damjanovic, Tatiana
AU - Nolan, Charles
PY - 2010/4
Y1 - 2010/4
N2 - Less is known about social welfare objectives when it is costly to change prices, as in Rotemberg (1982), compared with Calvo-type models. We derive a quadratic approximate welfare function around a distorted steady state for the costly price adjustment model. We highlight the similarities and differences to the Calvo setup. Both models imply inflation and output stabilization goals. It is explained why the degree of distortion in the economy influences inflation aversion in the Rotemberg framework in a way that differs from the Calvo setup.
AB - Less is known about social welfare objectives when it is costly to change prices, as in Rotemberg (1982), compared with Calvo-type models. We derive a quadratic approximate welfare function around a distorted steady state for the costly price adjustment model. We highlight the similarities and differences to the Calvo setup. Both models imply inflation and output stabilization goals. It is explained why the degree of distortion in the economy influences inflation aversion in the Rotemberg framework in a way that differs from the Calvo setup.
KW - Price Stickiness, Rotemberg Model, Costly Price Adjustment.
UR - http://ideas.repec.org/p/san/cdmawp/0907.html
M3 - Working paper
T3 - Centre for Dynamic Macroeconomic Analysis, Working Paper
SP - 1
EP - 11
BT - Second Order Accurate Approximation to the Rotemberg Model Around a Distorted Steady State
ER -