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The State-Dependent Effects of Monetary Policy: Calvo versus Rotemberg

Kamalyan, Hayk (2021): The State-Dependent Effects of Monetary Policy: Calvo versus Rotemberg.

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Abstract

This paper evaluates state-dependence in monetary policy transmission mechanism under Calvo and Rotemberg price adjustment schemes. Although the two models are equivalent to first order, they produce very different results once considered at a higher order. In particular, the Rotemberg model produces more state-dependence compared to the Calvo model. The result is reversed once the macroeconomic wedges are eliminated from the models.

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