Price bargaining, the persistence puzzle, and monetary policy

Arbeitspapier

In the recent New Keynesian literature a standard assumption is that the price for which an intermediate good is sold to the final good firm is equal to the marginal costs of the intermediate good firm. However, there is empirical evidence that this need not to hold. This paper introduces price bargaining into an otherwise standard New Keynesian DSGE model and show that this model performs reasonably well in replicating the observed persistence values. We further discuss the role of those product market imperfections for monetary policy and find a trade-off between stabilizing intermediate or final good inflation. In addition, the Ramsey optimal monetary policy can be approximated reasonably well with a Taylor-type interest rate rule with weights on both inflation rates and output.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1629

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Market Structure, Firm Strategy, and Market Performance: General
• Subject: Inflation and Output Persistence ; Monetary Policy ; Price Bargaining. ; Inflation ; Preisrigidität ; Gesamtwirtschaftliche Produktion ; Ungleichgewichtstheorie ; Dynamisches Gleichgewicht ; Lieferanten-Kunden-Beziehung ; Betriebliche Preispolitik ; Verhandlungen ; Schock ; Geldpolitik ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wesselbaum, Dennis
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/32807
• Last update: 10.03.2025, 11:43 AM CET