This paper proposes a theoretical explanation of the empirical finding that private consumption increases in response to an increase in government spending. The explanation requires two ingredients. First, labor demand expands (e.g. prices are sticky). Second, general non-separable preferences...

We use a unique panel data set to analyse price setting in restaurants in Switzerland 1977-93, for items known to have sticky prices. The macroeconomic environment during this time period allows us to examine how firms adjust prices at low (0%) and fairly high (7%) inflation. Our results...

This note makes two comments on recent NNS models. First, it disputes the way physical capital has been introduced into these models, arguing that this leads to the dubious postulate that the cost of adjusting physical capital stock is an order of magnitude lower than the cost of changing...

We examine the effect of introducing price stickiness into a stochastic growth model subject to a cash in advance constraint. As has been previously documented, the introduction of price rigidities provides a substantial source of monetary non-neutrality; leads to a strong positive correlation...

This Paper illustrates a model of predetermined pricing based on the work of Fischer (1977), where firms set a fixed schedule of nominal prices at the time of price readjustment. This type of price-setting specification cannot produce any excess persistence in a fixed duration model of staggered...

Does time-varying business volatility affect the price setting of firms and thus the transmission of monetary policy into the real economy? To address this question, we estimate from the firm-level micro data of the German IFO Business Climate Survey the impact of idiosyncratic volatility on the...

This paper investigates the basic stylized facts of business cycles in the G7 countries using quarterly data from 1960-89. The methodology used is based on Kydland and Prescott (1990). The evidence suggests that the real business cycles model can account for several important stylized facts for...

This paper introduces deep habits into a sticky-price sticky-wage economy and asks whether the countercyclical markup movements induced by deep habits is helpful for accounting for the dynamic effects of monetary policy shocks. We find that this is the case: When allowing for deep habits, the...

Erceg et al. (2000) show that when both wages and prices are sticky, maximization of expected utility is equivalent to minimizing a loss function with three terms, involving measures of the variability of wage inflation, price inflation and the output gap respectively. Here we generalize their...

This paper estimates the NAIRU (standing for the Non-Accelerating Inflation Rate of Unemployment) as a parameter that varies over time. The NAIRU is the unemployment rate that is consistent with a constant rate of inflation. Its value is determined in an econometric model in which the inflation...