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

48 Pages Posted: 27 Sep 2001 Last revised: 18 Nov 2007

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

Multiple version iconThere are 3 versions of this paper

Date Written: August 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.

Keywords: consumption insurance, marriage

JEL Classification: D1, E21, E3, E4, E5, J12

Suggested Citation

Christiano, Lawrence J. and Eichenbaum, Martin and Evans, Charles L., Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy (August 2001). FRB of Chicago Working Paper No. 2001-08; FRB of Cleveland Working Paper No. 01-07. Available at SSRN: https://ssrn.com/abstract=284956 or http://dx.doi.org/10.2139/ssrn.284956

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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