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I derive the imperfect-common-knowledge Phillips curve under the assumption of Rotemberg pricing. The curve differs from the Calvo version in one important aspect. Expectations of future relative prices impact in ation.
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This paper develops an algorithm that enables to solve macroeconomic models with Rotemberg pricing and imperfect common knowledge. Under the concept of imperfect common knowledge, Rotemberg pricing requires the solution algorithm to take prices explicitly into account. The state space includes...
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