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I have some issues in deriving the NKPC in Clarida, Gali & Gertler (2002) that you can find here. I'm asked to derive the NKPC by combining the log-linearized optimal price setting rule (22) with the price index (24), but I don't get the same result (equation 46). Besides, I'd also make the same applying Rotemberg rather than Calvo, with the following two formulas:

  1. formula

  2. formula

I assume equation 24 to be of this kind given that in Rotemberg every firm changes its prices every period. However, the result I get after having log linearized these two equations is weird. In fact, I don't get anything similiar to what is written in the paper. Specifically, I can't cancel out the price formula and I don't get inflation expectations.

Please, let me know what you get in computing the NKPC in this case.
Thank you in advance.

P.S. Maybe I forgot a formula in the second term in 1, but I'm not sure about that.

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  • $\begingroup$ Welcome to Economics SE! Please note that we do have a policy on homework questions that requires you to demonstrate reasonable effort, which includes your own attempt(s) at a solution as well as properly formatting the post using Markdown and MathJax. $\endgroup$ – Herr K. Apr 27 at 15:39
  • $\begingroup$ Hi. Welcome to Econ Stack Exchange. Try not to use abbreviations unless you first define them. This helps with discoverability with search engines, not to mention the average reader. $\endgroup$ – jmbejara Apr 27 at 16:43
  • $\begingroup$ @HerrK. I created the link for the paper. I did not know about your policy, hence I will post my results as soon as I can! Thank you $\endgroup$ – AVR Apr 27 at 17:24

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