Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro-evidence with Macro Implications


  • Corresponding author: Huw Dixon, Cardiff Business School, Colum Drive, Cardiff CF10 3EU, UK. Email:

  • The authors thank two anonymous referees, Fabio Canova, Greg De Walque, Dale Henderson, Julien Matheron, Stéphane Moyen and Argia Sbordone for helpful remarks. They also thank seminar participants at the RES 2011 conference, the Banque de France, the T2M conference (Montreal 2011), the European Monetary Forum (York 2010), Cardiff University and Lille University. They are grateful to Michel Juillard for help in simulating the GT model with the Dynare code. The views expressed in this article may not necessarily be those of the Banque de France. Huw Dixon thanks the Fondation Banque de France for funding his participation in this research.


The Generalised Calvo and the Generalised Taylor models of price and wage setting are, unlike the standard Calvo and Taylor counterparts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard dynamic stochastic general equilibrium model. The Generalised Taylor model is found to help rationalise the hump-shaped and persistent response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation.