"This paper compares the P-bar model of price adjustment with the currently dominant Calvo specification. Theoretically, the P-bar model is more attractive as it depends upon adjustment costs for physical quantities rather than nominal prices, while incorporating a one-period information lag....

In a recent paper, Canzoneri, Henderson, and Rogoff have shown that it is possible for the monetary authority to peg the nominal interest rate without creating price level indeterminacy in a simplified version of the 1975 Sargent-Wallace model. The present paper begins by reviewing that result,...