Persistency in sticky price models

Nominal rigidities imply that nominal shocks have an impact effect which may be propagated by standard mechanisms. However, the nominal adjustment process may in itself be a propagation mechanism causing persistent effects of nominal shocks. This may be caused by inertia in nominal wage and price adjustment arising due to input-output networks or multiperiod nominal contracting as captured in models with staggered price/wage decisions. It has recently been contested whether staggering can account for persistency of any quantitative importance. This paper reviews the theory and empirical evidence on this issue and it is concluded that staggering may be a quantitative important propagation mechanism. (C) 1998 Elsevier Science B.V. All rights reserved.