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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 Journal of Political Economy, Vol. 113, pp. 1-45, February 2005 Abstract: 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. Accepted Paper Series Date posted: January 13, 2005Suggested CitationContact Information
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