Partial Adjustment and Staggered Price Setting

This paper compares staggered price setting to partial adjustment of prices in a small optimizing IS/LM model. In contrast to the overwhelming perception in the literature, the models are not similar for most parameterizations. These results clarify some confusion in recent work regarding the persistence of output responses to monetary shocks, reveal important quantitative differences between the stabilizing properties of different monetary policies across sticky price specifications, and highlight the role for more research on new-Keynesian ereal rigiditiesd in DGE models. JEL Codes: E32, E10, E31 Much of this research is cited in Goodfriend and King (1997). Dynamic general equilibrium models with 1 sticky prices have recently emphasized the partial adjustment model of sticky prices, as in Hairault and Portier (1993), Ireland (1996), Kimball (1995), Kim (1998), King and Watson (1996), King and Wolman (1996), Rotemberg and Woodford (1997,1998), Sbordone (1998), and Yun (1996). Exa...