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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
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Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach
TL;DR: Using a Bayesian likelihood approach, the authors estimate a dynamic stochastic general equilibrium model for the US economy using seven macroeconomic time series, incorporating many types of real and nominal frictions and seven types of structural shocks.
An estimated dynamic stochastic general equilibrium model of the euro area. NBB Working Paper Nr. 35
Frank Smets,Raf Wouters +1 more
TL;DR: In this article, a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area was developed and estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment and the nominal interest rate.
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Nominal rigidities and the dynamic effects of a shock to monetary policy
TL;DR: The authors present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output, and the key features of their model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy.
Book
Monetary Theory and Policy
TL;DR: In this article, empirical evidence on money and output is presented, including the Tobin effect and the MIU approximation problems, and a general equilibrium framework for monetary analysis is presented.
References
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Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model
TL;DR: The authors showed that a simple sticky price model based on Rotemberg (1982) is consistent with a variety of facts concerning the correlation of prices, hours and output, and that this correlation is stronger than correlations between prices and hours of work.
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The Exchange rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation
TL;DR: In this article, the model predicts that a positive domestic money supply shock lowers the domestic nominal interest rate, that it raises output and that it leads to a nominal and real depreciation of the country's currency.
Journal ArticleDOI
Monetary Policy under Neoclassical and New-Keynesian Phillips Curves, with an Application to Price Level and Inflation Targeting
TL;DR: The authors compare discretionary monetary policy under two Phillips curves and show that a stability tradeoff likely exists under the New-Keynesian specification, which does not arise under the Neoclassical specification.
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Nominal Wage Rigidities and the Propagation of Monetary Disturbances
TL;DR: This article showed that a simple dynamic general equilibrium model that includes "Taylor-style" (1980) wage and price contracts can account for a substantial contract multiplier under various assumptions about the structure of the capital market.
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Labor contracts and monetary policy
TL;DR: In this article, the authors examined some of the factors that determine the length of labor contracts and how they are affected by monetary policy and argued that a successful stabilization policy might be expected to increase the long-term contract length.
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