Price-Setting, Monetary Policy and the Contractionary Effects of Productivity Improvements

37 Pages Posted: 30 Sep 2011

See all articles by Massimiliano Tancioni

Massimiliano Tancioni

Sapienza University of Rome, Department of Public Economics

Francesco Giuli

University of Rome III - Department of Economics

Date Written: May 2, 2011

Abstract

This paper adds to the large literature on the effects of technology shocks empirically and theoretically. Using a SVEC model, we …first show that not only hours but also investment decline temporarily following a technology improvement. This result is robust with respect to important data and identi…cation issues addressed in the literature. We then show that the negative response of inputs is consistent with an estimated monetary DSGE model in which the presence of strategic complementarity in price setting, in addition to nominal rigidities, lowers the sensitivity of prices to marginal costs, and monetary policy does not fully accommodate the shock.

Keywords: Technology shocks, inputs dynamics, Structural Vector Error Correction model, New- Keynesian DSGE model, Bayesian inference

JEL Classification: C11, C32, E22, E32, E52

Suggested Citation

Tancioni, Massimiliano and Giuli, Francesco, Price-Setting, Monetary Policy and the Contractionary Effects of Productivity Improvements (May 2, 2011). Available at SSRN: https://ssrn.com/abstract=1935895 or http://dx.doi.org/10.2139/ssrn.1935895

Massimiliano Tancioni (Contact Author)

Sapienza University of Rome, Department of Public Economics ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

Francesco Giuli

University of Rome III - Department of Economics ( email )

via Ostiense, 139
Rome, 00154
Italy

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