Open AccessPosted Content
Optimal Monetary Policy with Staggered Wage and Price Contracts
TLDR
In this article, the unconditional expectation of average household utility is expressed in terms of the unconditional variances of the output gap, price inflation, and wage inflation, where the model exhibits a tradeoff between stabilizing output gap and price inflation.Abstract:
We formulate an optimizing-agent model in which both labor and product markets exhibit monopolistic competition and staggered nominal contracts. The unconditional expectation of average household utility can be expressed in terms of the unconditional variances of the output gap, price inflation, and wage inflation. Monetary policy cannot replicate the Pareto-optimal equilibrium that would occur under completely flexible wages and prices; that is, the model exhibits a tradeoff between stabilizing the output gap, price inflation, and wage inflation. The Pareto optimum is attainable only if either wages or prices are completely flexible. For reasonable calibrations of the model, we characterize the optimal policy rule. Furthermore, strict price inflation targeting is clearly suboptimal, whereas rules that also respond to either the output gap or wage inflation are nearly optimal.read more
Citations
More filters
Journal ArticleDOI
Technology Shocks and Labor Market Dynamics: Some Evidence and Theory
Zheng Liu,Louis Phaneuf +1 more
TL;DR: In this article, the effects of technology shocks on labor market dynamics were studied and it was shown that a positive technology shock leads to a weak response in nominal wage inflation, a modest decline in price inflation, and a modest rise in real wage on impact and a permanent rise in the long run.
Posted Content
Mélèze : A DGSE model for, France within the Euro Area
TL;DR: Meleze (Modele economique linearise d'equilibre en zone euro) as mentioned in this paper is a modele neo-Keynesien of type DSGE with the caracteristiques suivantes: the France and le reste de la zone euro forment une union monetaire ; a fraction des menages est non-ricardienne and consomme son revenu courant; les entreprises sont en concurrence monopolistique sur le marche des biens, and les travailleurs le sont sur le travo du
Posted Content
Laffer curves and fiscal multipliers: lessons from Mélèze model
TL;DR: In this article, a modelisation DSGE de la zone euro developpee a l'Insee dans un but d'evaluation ex ante de reformes budgetaires is presented.
Posted Content
Monetary policy implications of state-dependent prices and wages
TL;DR: In this article, the effects of monetary shocks in a model of state-dependent price and wage adjustment based on "control costs" are studied, where suppliers of retail goods and labor are both monopolistic competitors that face idiosyncratic productivity shocks and nominal rigidities.
ReportDOI
The Cost of Nominal Inertia in NNS Models
TL;DR: In this paper, the authors calculate the welfare cost of nominal inertia in a New Neoclassical Synthesis model with wage and price stickiness, capital formation, and empirically estimated rules for government spending and the cental bank's interest rate policy.
References
More filters
Journal ArticleDOI
Staggered prices in a utility-maximizing framework
TL;DR: In this article, the authors developed a model of staggered prices along the lines of Phelps (1978) and Taylor (1979, 1980), but utilizing an analytically more tractable price-setting technology.
Journal ArticleDOI
Discretion versus policy rules in practice
TL;DR: In this article, the authors examine how recent econometric policy evaluation research on monetary policy rules can be applied in a practical policymaking environment, and the discussion centers around a hypothetical but representative policy rule much like that advocated in recent research.
Journal ArticleDOI
The solution of linear difference models under rational expectations
TL;DR: In this article, an explicit solution for an important subclass of the model Shiller refers to as the general linear difference model is given, together with the conditions for existence and uniqueness.
Journal ArticleDOI
Aggregate Dynamics and Staggered Contracts
TL;DR: In this article, the authors show that staggered wage contracts as short as 1 year are capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States.
Journal ArticleDOI
An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy
TL;DR: In this paper, a simple quantitative model of output, interest rate and inflation determination in the United States, and uses it to evaluate alternative rules by which the Fed may set interest rates.
Related Papers (5)
Estimation and control of an optimization-based model with sticky prices and wages
Jeffery D. Amato,Thomas Laubach +1 more
Monetary policy in an estimated optimisation-based model with sticky prices and wages
Jeffery D. Amato,Thomas Laubach +1 more