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Federal Reserve Bank of Chicago
Working Paper Series
Evaluating the Calvo model of sticky prices
Martin Eichenbaum
Jonas D. M. Fisher
Abstract

This paper studies the empirical performance of a widely used model of nominal rigidities: the Calvo model of sticky goods prices. We describe an extended version of this model with variable elasticity of demand of the differentiated goods and imperfect capital mobility. We find little evidence against standard versions of the model without the extensions, but the estimated frequency of price adjustment is implausible. With the extended model the estimates are more reasonable. This is especially so if the sample is split to take into account a possible change in monetary regime around 1980.


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Martin Eichenbaum & Jonas D. M. Fisher, Evaluating the Calvo model of sticky prices, Federal Reserve Bank of Chicago, Working Paper Series WP-03-23, 2003.
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Keywords: Prices
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