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Nominal Rigidities and the Dynamic Effects of a Shock to Monetary PolicyLawrence J. ChristianoNorthwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER) Martin EichenbaumNorthwestern University; National Bureau of Economic Research (NBER) Charles L. EvansFederal Reserve Bank of Chicago - Research Department July 2001 NBER Working Paper No. w8403 Abstract: 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.
Number of Pages in PDF File: 48 working papers seriesDate posted: July 29, 2001Suggested CitationContact Information
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