Editing New Keynesian economics (section)

====Calvo staggered contracts model====

In 1983 [[Guillermo Calvo]] wrote "Staggered Prices in a Utility-Maximizing Framework".<ref>{{cite journal | last1 = Calvo | first1 = Guillermo A | year = 1983 | title = Staggered Prices in a Utility-Maximizing Framework | journal = Journal of Monetary Economics | volume = 12 | issue = 3| pages = 383–398 | doi = 10.1016/0304-3932(83)90060-0 }}</ref> The original article was written in a [[Discrete time and continuous time|continuous time]] mathematical framework, but nowadays is mostly used in its [[Discrete time and continuous time|discrete time]] version. The Calvo model has become the most common way to model nominal rigidity in new Keynesian models. There is a probability that the firm can reset its price in any one period {{mvar|h}} (the [[hazard rate]]), or equivalently the probability ({{math|1 &minus; {{var|h}}}}) that the price will remain unchanged in that period (the survival rate). The probability {{mvar|h}} is sometimes called the "Calvo probability" in this context. In the Calvo model the crucial feature is that the price-setter does not know how long the nominal price will remain in place, in contrast to the Taylor model where the length of contract is known ''ex ante''.