Working Paper

Nominal rigidities and the dynamic effects of a shock to monetary policy

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: Monetary policy;

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    Eichenbaum, Martin

    Evans, Charles L.

    Christiano, Lawrence J.

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2001

Number: WP-01-08