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
Journal of Political Economy, Vol. 113, pp. 1-45, February 2005
We present a model embodying moderate amounts of nominal rigidities that 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 that have an average duration of three quarters and variable capital utilization.
Date posted: January 13, 2005
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