Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts

Abstract

We develop the Generalized Taylor Economy (GTE) in which there are many sectors with overlapping contracts of di¤erent lengths. In economies with the same average contract length, monetary shocks will be more persistent when longer contracts are present. Using the Bils-Klenow distribution of contract lengths, we …nd that the corresponding GTE tracks the US… (More)

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