Nominal Rigidities, Monetary Policy and Pigou Cycles

19 Pages Posted: 28 Apr 2013

See all articles by Stéphane Auray

Stéphane Auray

CREST-Ensai

Paul Gomme

Concordia University; CIREQ

Shen Guo

Central University of Finance and Economics (CUFE)

Date Written: May 2013

Abstract

Capturing the boom phase of Pigou cycles and resolving the comovement problem require positive sectoral comovement. This article addresses these observations using a two‐sector New Keynesian model. Price rigidities dampen movements in the relative price of durables following a monetary policy shock. Durables and non‐durables are estimated to be complements in utility, allowing for a resolution of the comovement problem for modest degrees of price rigidity. Nominal rigidities also make firms forward‐looking in their pricing behaviour, which leads to relative price dynamics that generate positive sectoral comovement in the boom phase of a Pigou cycle.

Suggested Citation

Auray, Stéphane and Gomme, Paul and Guo, Shen, Nominal Rigidities, Monetary Policy and Pigou Cycles (May 2013). The Economic Journal, Vol. 123, Issue 568, pp. 455-473, 2013. Available at SSRN: https://ssrn.com/abstract=2257131 or http://dx.doi.org/10.1111/ecoj.12000

Stéphane Auray (Contact Author)

CREST-Ensai ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Paul Gomme

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

CIREQ ( email )

C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

Shen Guo

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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