Notes on Price Stickiness: With Special Reference to Liability Dollarization and Credibility
Calvo, Guillermo A.
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This paper is motivated by trying to understand the implication of price stickiness in Emerging Market economies, EMs. The issue is important because EMs are subject to significantly higher volatility of fundamentals than advanced countries (see Hausmann and Rojas-Suarez (1996)). Thus, full-equilibrium relative prices are also likely to exhibit large volatility in EMs, making price stickiness an even more critical issue in EMs than in advanced countries.
The paper was prepared for a Plenary Session of the annual conference of the Society of Economic Dynamics, held in San Jose, Costa Rica, June 22-24, 2000.