TY  - JOUR
AU  - Alvarez, Fernando E
AU  - Lippi, Francesco
AU  - Passadore, Juan
TI  - Are State and Time Dependent Models Really Different?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 22361
PY  - 2016
Y2  - June 2016
DO  - 10.3386/w22361
UR  - http://www.nber.org/papers/w22361
L1  - http://www.nber.org/papers/w22361.pdf
N1  - Author contact info:
Fernando E. Alvarez
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-4412
Fax: 773/702-8490
E-Mail: f-alvarez1@uchicago.edu

Francesco Lippi
Luiss University 
E-Mail: francescolippi@gmail.com

Juan Passadore
Einaudi Institute for Economics and Finance (EIEF)
Via Sallustiana 62
Rome, 00187
Italy
E-Mail: juan.passadore@eief.it
M1  - published as Fernando Alvarez, Francesco Lippi, Juan Passadore. "Are State- and Time-Dependent Models Really Different?," in Martin Eichenbaum and Jonathan A. Parker, editors, "NBER Macroeconomics Annual 2016, Volume 31" University of Chicago Press (2017)

M3  - presented at "31st Annual Conference on Macroeconomics", April 15-16, 2016
AB  - Yes, but only for large monetary shocks. In particular, we show that in a broad class of models where shocks have continuous paths, the propagation of a monetary impulse is independent of the nature of the sticky price friction when shocks are small. The propagation of large shocks instead depends on the nature of the friction: the impulse response of inflation to monetary shocks is independent of the shock size in time-dependent models, while it is non-linear in state-dependent models. We use data on exchange rate devaluations and inflation for a panel of countries over 1974-2014 to test for the presence of state dependent decision rules. We present some evidence of a non-linear effect of exchange rate changes on prices in a sample of flexible-exchange rate countries with low inflation. We discuss the dimensions in which this finding is robust and the ones in which it is not.
ER  -