Posted: 13 Jan 2005
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: 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