Monetary policy rule parameters estimated with conventional estimation techniques can be severely biased if the estimation sample includes periods of low interest rates. Nominal interest rates cannot be negative, so that censored regression methods like Tobit estimation have to be used to...

We provide a systematic analysis of fiscal consolidation in a medium-scale dynamic general equilibrium model. Our results show that the choice of the consolidation instrument is very important, not only with respect to the short- and long-run output effects of the different consolidation...

This paper explores the influence of wage and price staggering on monetary persistence. First, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labor and product markets. We show that the...

In the recent New Keynesian literature a standard assumption is that the price for which an intermediate good is sold to the final good firm is equal to the marginal costs of the intermediate good firm. However, there is empirical evidence that this need not to hold. This paper introduces price...

In this paper we empirically investigate the time- and state-dependent behavior of aggregate price setting. We implement a testing procedure by means of a nonparametric representation of the structural form New Keynesian Phillips curve. By means of the so-called functional coefficient regression...

In this paper we incorporate the two most prominent approaches of inequality aversion, i.e. Fehr and Schmidt (1999) and Bolton and Ockenfels (2000) into an otherwise standard New Keynesian macro model and compare them with respect to their influence on the long-run effectiveness of monetary...

The paper studies the effects of credible disinflation in the presence of real wage rigidity, comparing the Calvo and Rotemberg price setting mechanisms (the two popular variants of the New-Keynesian model). In both types of models, a credible, gradual disinflation is shown to lead to a delayed...

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 gains from price decreases of equal magnitude. Price...

The paper studies the macroeconomic effects of government spending shocks in an economy characterized by positive trend growth. It shows that the lower is the trend growth rate the less inflationary are government spending shocks and vice versa. Moreover, on impact output is higher but exhibits...

Empirical data show that firms tend to improve their ranking in the productivity distribution over time. A stickyprice model with firm-level productivity growth fits this data and predicts that the optimal long-run inflation rate is positive and between 1.5% and 2% per year. In contrast, the...