Rule‐Of‐Thumb Consumers, Productivity, and Hours

22 Pages Posted: 16 May 2012

Date Written: June 2012

Abstract

In this paper, we study the transmission mechanism of productivity shocks in a model with rule‐of‐thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule‐of‐thumb consumers is also very helpful when accounting for recent empirical evidence on productivity shocks. Rule‐of‐thumb agents, together with nominal and real rigidities, play an important role in reproducing the negative response of hours and the delayed response of output after a productivity shock.

Keywords: Liquidity constraints, nominal rigidities, productivity shocks, real rigidities

JEL Classification: E32

Suggested Citation

Furlanetto, Francesco and Seneca, Martin, Rule‐Of‐Thumb Consumers, Productivity, and Hours (June 2012). The Scandinavian Journal of Economics, Vol. 114, Issue 2, pp. 658-679, 2012. Available at SSRN: https://ssrn.com/abstract=2060821 or http://dx.doi.org/10.1111/j.1467-9442.2012.01699.x

Francesco Furlanetto

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Martin Seneca

Independent ( email )

No Address Available

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