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
Oil price shocks and their transmission mechanism in an oil-exporting economy: A VAR analysis informed by a DSGE model
TL;DR: The authors examined the macroeconomic effects of oil price shocks and the oil shock transmission mechanism in an oil-exporting country, Canada, using a structural VAR with sign restrictions that comes from a two-country dynamic stochastic general equilibrium (DSGE) model to jointly identify oil price, domestic supply and U.S. monetary policy shocks.
Journal ArticleDOI
Monetary Policy and Natural Disasters in a DSGE Model
TL;DR: In this article, the authors used a dynamic stochastic general equilibrium (DSGE) model to investigate the appropriate monetary policy response to a natural disaster and showed that the standard Taylor rule response in models with and without nominal rigidities is to increase the nominal interest rate.
Journal ArticleDOI
How Well Does a Small Structural Model with Sticky Prices and Wages Fit Postwar U.S. Data
Julien Matheron,Céline Poilly +1 more
TL;DR: In this paper, a small structural model with sticky prices and wages, embedding various modelling devices designed to increase the degree of strategic complementarity between price-setters, can fit postwar U.S. data.
Posted Content
Fiscal consolidation in a small euro area economy
TL;DR: In this paper, the authors focus on the costs and benefits of a fiscal consolidation in a small euro area economy and study the macroeconomic impacts and the welfare analysis in a New-Keynesian general equilibrium model with non-Ricardian agents.
Journal ArticleDOI
Comparing New Keynesian Models of the Business Cycle: A Bayesian Approach
Pau Rabanal,Juan F Rubio-Ramirez +1 more
TL;DR: The authors compare four versions of the New Keynesian model with nominal rigidities using a Bayesian approach and find that adding price indexation improves the fit of Calvo's (1983) model.
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