-
How to Compare Taylor and Calvo Contracts: A Comment on Michael Kiley
- Journal of Money, Credit, and Banking
- The Ohio State University Press
- Volume 38, Number 4, June 2006
- pp. 1119-1126
- 10.1353/mcb.2006.0055
- Article
- Additional Information
In a recent paper, Michael Kiley argued that the Calvo model of price adjustment is both quantitatively and qualitatively different from the Taylor model. What we show is that Kiley (along with most other people) are choosing the wrong parameterization to compare the two models. In effect they are comparing the average age of Calvo contracts with the completed length of Taylor contracts. When we compare the average age of Taylor contracts with the average of Calvo, the differences become muchsmaller and easier to understand. We also show that autocorrelation of output can be larger in a Taylor economy than in the age-equivalent Calvo economy.