Title: Firm-specific factors in a DSGE model with Taylor price setting
Authors: de Walque, G. ×
Smets, Frank
Wouters, R. #
Issue Date: Sep-2006
Publisher: Association of the International Journal of Central Banking
Series Title: International Journal of Central Banking vol:2 issue:3
Abstract: Using Bayesian likelihood methods, this paper estimates a dynamic stochastic general equilibrium model with Taylor contracts and firm-specific factors in the goods market on euro-area data. The paper shows how the introduction of firmspecific factors improves the empirical fit of the model and reduces the estimated contract length to a duration of four quarters, which is more consistent with the empirical evidence on average price durations in the euro area. However, in order to obtain this result, the estimated real rigidity is very large, either in the form of a very large constant elasticity of substitution between goods or in the form of an endogenous elasticity of substitution that is very sensitive to the relative price. Finally, the paper also investigates the implications of these estimates for the distribution of prices and quantities across the various goods sectors.
ISSN: 1815-4654
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Non-KU Leuven Association publications
× corresponding author
# (joint) last author

Files in This Item:

There are no files associated with this item.

Request a copy


All items in Lirias are protected by copyright, with all rights reserved.