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

Posted: 13 Jan 2005  

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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Abstract

We present a model embodying moderate amounts of nominal rigidities that 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 that have an average duration of 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. Journal of Political Economy, Vol. 113, pp. 1-45, February 2005. Available at SSRN: https://ssrn.com/abstract=648043

Lawrence J. Christiano

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 (Contact Author)

Northwestern University ( email )

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Evanston, IL 60208
United States
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847-491-7001 (Fax)

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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P.O. Box 834
Chicago, IL 60604-1413
United States
312-322-5812 (Phone)
312-322-2357 (Fax)

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