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2008•The B E Journal of MacroeconomicsRequires access

On Equilibrium Determinacy in New Keynesian Models with Staggered Wage and Price Setting

Peter Flaschel, Reiner Franke, Christian R. Proaño

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Abstract

This paper shows that an analytical analysis of the determinacy properties of the New Keynesian model with both staggered wages and prices is possible, despite the high dimensional nature (4D) of this model, if it is appropriately reformulated in continuous time. Our analysis supports Galí's (2008) numerical findings on the determinacy frontier and its reformulated Taylor principle, where a generalized Taylor rule that employs a weighted combination of wage and price inflation as a measure of the inflation gap is used.

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What this paper is about

This paper shows that an analytical analysis of the determinacy properties of the New Keynesian model with both staggered wages and prices is possible, despite the high dimensional nature (4D) of this model, if it is appropriately reformulated in continuous time. Our analysis supports Galí's (2008) numerical findings on the determinacy frontier and its reformulated Taylor principle, where a generalized Taylor rule that employs a weighted combination of wage and price inflation as a measure of the inflation gap is used.

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OpenAlex reports 20 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

This paper shows that an analytical analysis of the determinacy properties of the New Keynesian model with both staggered wages and prices is possible, despite the high dimensional nature (4D) of this model, if it is appropriately reformulated in continuous time. Our analysis supports Galí's (2008) numerical findings on the determinacy frontier and its reformulated Taylor principle, where a generalized Taylor rule that employs a weighted combination of wage and price inflation as a measure of the inflation gap is used.

Key concepts: Determinacy, New Keynesian economics, Economics, Inflation (cosmology), Keynesian economics, Taylor rule, Wage, Measure (data warehouse)

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