We present a model embodying moderate amounts of nominal rigidities that accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts that have an average duration of three quarters and variable capital utilization.

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Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

Part 1 Unemployment in the model of balanced growth: the labour market long-run equilibrium and balanced growth adjustment dynamics. Part 2 further ananlysis of the labour market: search intensity and job advertising.

Equilibrium Unemployment Theory

This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules. The literature has not yet converged on a particular set of assumptions for identifying the effects of an exogenous shock to monetary policy. Nevertheless, there is considerable agreement about the qualitative effects of a monetary policy shock in the sense that inference is robust across a large subset of the identification schemes that have been considered in the literature. We document the nature of this agreement as it pertains to key economic aggregates.

Monetary Policy Shocks: What Have We Learned and to What End?

We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts of average duration three quarters, and variable capital utilization.

Nominal rigidities and the dynamic effects of a shock to monetary policy

I develop a general equilibrium model with sticky prices, credit constraints, nominal loans and asset prices. Changes in asset prices modify agents’ borrowing capacity through collateral value; changes in nominal prices affect real repayments through debt deflation. Monetary policy shocks move asset and nominal prices in the same direction, and are amplified and propagated over time. The “financial accelerator” is not constant across shocks: nominal debt stabilises supply shocks, making the economy less volatile when the central bank controls the interest rate. I discuss the role of equity, debt indexation and household and firm leverage in the propagation mechanism. Finally, I find that monetary policy should not target asset prices as a means of reducing output and inflation volatility.

/pdf/house-prices-borrowing-constraints-and-monetary-policy-in-53saibtjbe.pdf

House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle

Indivisible labor and the business cycle

A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. This transition is inevitable given positive rates of total factor productivity growth. We use a standard growth model with one good and two available technologies. The first, denoted the capital as inputs. The second, denoted the does not require land. We show that in the early stages of development, only the Malthus technology is used and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable and both technologies are employed. At this point, living standards improve since population growth has less influence on per capita income growth. In the limit, the economy behaves like a standard Solow growth model.

Malthus to Solow

Money is incorporated into a real business cycle model using a cash-in-advance constraint The model is used to analyze whether the business cycle is different in high-inflation and low-inflation economies and to analyze the impact of variability in the growth rate of money The welfare cost of the inflation tax is measured and the steady-state properties of high and low inflation economies are compared The welfare cost of a sustained (10 percent) inflation is estimated to be between 011 percent and 04 percent of GNP The features of the business cycle are the same in high and low inflation economies, but the steady-state paths may be quite different Copyright 1989 by American Economic Association (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another version of this item) (This abstract was borrowed from another versio (This abstract was borrowed from another version of this item)

The Inflation Tax in a Real Business Cycle Model

Money is incorporated into a real business cycle model using a cash-in-advance constraint. The model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money. In addition, the welfare cost of the inflation tax is measured and the steady-state properties of high and low inflation economies are compared.

A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution which is the transition from an era when per capita incomes are stagnant to one with sustained growth.... [The authors] use a standard growth model with...[several] technologies. The first denoted the Malthus technology requires land labor and reproducible capital as inputs. The second denoted the Solow technology does not require land. [The authors] show that in the early stages of development only the Malthus technology is used and due to population growth living standards are stagnant despite technological progress. Eventually technological progress causes the Solow technology to become profitable and both technologies are employed. At this point living standards improve since population growth has less influence on per capita income growth. In the limit the economy behaves like a standard Solow growth model. (EXCERPT)

Gary D. Hansen

Papers

Indivisible labor and the business cycle

Malthus to Solow

The Inflation Tax in a Real Business Cycle Model

The Inflation Tax in a Real Business Cycle Model

Malthus to Solow