Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
Lawrence J. Christiano
Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)
Northwestern University; National Bureau of Economic Research (NBER)
Charles L. Evans
Federal Reserve Bank of Chicago - Research Department
FRB of Chicago Working Paper No. 2001-08
FRB of Cleveland Working Paper No. 01-07
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
Keywords: consumption insurance, marriage
JEL Classification: D1, E21, E3, E4, E5, J12
Date posted: September 27, 2001 ; Last revised: November 18, 2007
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