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Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

48 Pages Posted: 29 Jul 2001  

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)

Martin Eichenbaum

Northwestern University; National Bureau of Economic Research (NBER)

Charles L. Evans

Federal Reserve Bank of Chicago - Research Department

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Date Written: July 2001

Abstract

We present a model embodying moderate amounts of nominal rigidities which 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 of average duration three quarters, and variable capital utilization.

Suggested Citation

Christiano, Lawrence J. and Eichenbaum, Martin and Evans, Charles L., Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy (July 2001). NBER Working Paper No. w8403. Available at SSRN: https://ssrn.com/abstract=278036

Lawrence J. Christiano (Contact Author)

Northwestern University ( email )

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Federal Reserve Bank of Cleveland

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Federal Reserve Bank of Chicago

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Federal Reserve Bank of Minneapolis

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National Bureau of Economic Research (NBER)

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Martin Eichenbaum

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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Charles L. Evans

Federal Reserve Bank of Chicago - Research Department ( email )

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