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A Theory of Price Adjustment under Loss Aversion

Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J. - 2014

We present a new partial equilibrium theory of price adjustment, based on consumer loss aversion. In line with prospect … theory, the consumers' perceived utility losses from price increases are weighted more heavily than the perceived utility … an otherwise standard dynamic neoclassical model of monopolistic competition. The resulting theory of price adjustment is …

Persistent link: https://www.econbiz.de/10010398564

Worker Identity, Employment Fluctuations and Stabilization Policy

Snower, Dennis J.; Lechthaler, Wolfgang - Institute for the Study of Labor (IZA) - 2013

This paper provides a model of "social hysteresis" whereby long, deep recessions demotivate workers and thereby lead them to change their work ethic. In switching from a pro-work to an anti-work identity, their incentives to seek and retain work fall and consequently their employment chances...

Persistent link: https://www.econbiz.de/10010884315

Hyperbolic Discounting and Positive Optimal Inflation

Graham, Liam; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2011

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...

Persistent link: https://www.econbiz.de/10009021640

A Theory of Price Adjustment under Loss Aversion

Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2014

Persistent link: https://www.econbiz.de/10011096764

Envy, Guilt, and the Phillips Curve

Ahrens, Steffen; Snower, Dennis J. - Institute for the Study of Labor (IZA) - 2012

We incorporate inequity aversion into an otherwise standard New Keynesian dynamic equilibrium model with Calvo wage contracts and positive inflation. Workers with relatively low incomes experience envy, whereas those with relatively high incomes experience guilt. The former seek to raise their...

Persistent link: https://www.econbiz.de/10009646332

Envy, guilt, and the Phillips curve

Ahrens, Steffen; Snower, Dennis J. - Institut für Volkswirtschaftslehre, … - 2012

Persistent link: https://www.econbiz.de/10009646489

A theory of price adjustment under loss aversion

Ahrens, Steffen; Pirschel, Inske; Snower, Dennis J. - Institut für Volkswirtschaftslehre, … - 2014

Persistent link: https://www.econbiz.de/10010954816

The real effects of money growth in dynamic general equilibrium

Graham, Liam; Snower, Dennis J. - 2004

We analyse the effects of money growth within a standard New Keynesian framework and show that the interaction between staggered nominal contracts and money growth leads to a long-run trade-off between output and money growth. We explore the microeconomic mechanisms that lead to this trade-off,...

Persistent link: https://www.econbiz.de/10011604458

The return of the long-run Phillips curve

Graham, Liam; Snower, Dennis J. - 2003

This Paper integrates microfoundations of wage staggering into a simple dynamic general equilibrium model with rational expectations. In this context we show that a permanent increase in money growth leads to a permanent increase in the rate of inflation and a permanent reduction in the level of...

Persistent link: https://www.econbiz.de/10010332694

Long-run inflation-unemployment dynamics: The Spanish Phillips curve and economic policy

Karanassou, Marika; Sala, Héctor; Snower, Dennis J. - 2003

This Paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call ‘frictional growth’, i.e. the interaction between money growth and...

Persistent link: https://www.econbiz.de/10010332705