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Arguments in favor of Keynesian models as opposed to real business cycle models are often made on the grounds that the correlations and impulse response patterns found in the latter are inconsistent with the data. A recent and prominent example of this reasoning is Gali (1999). But certain...
Persistent link: https://www.econbiz.de/10004994012
The nature of price dynamics has long been thought important for the origin and duration of business cycles. To investigate this topic, we construct a dynamic stochastic general equilibrium macroeconomic model in which monopolistically competitive firms face fixed costs of changing the nominal...
Persistent link: https://www.econbiz.de/10004994040
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Though built with increasingly precise microfoundations, modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks, as recently stressed by Chari, Kehoe, and McGrattan [2000]. This is an ironic finding, since...
Persistent link: https://www.econbiz.de/10005387490
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This paper develops a general equilibrium model in which households face fixed costs associated with searching for a new supplier of consumption goods. These search costs provide firms with some monopoly power over their existing customers and generate the kind of customer flow dynamics first...
Persistent link: https://www.econbiz.de/10004993865
We describe a stochastic economic environment in which the mix of money and trade credit used as means of payment is endogenous. The economy has an infinite horizon, spatial separation and a credit-related transaction cost, but no capital. We find that the equilibrium prices of arbitrary...
Persistent link: https://www.econbiz.de/10004993896
Optimal monetary policy maximizes welfare, given frictions in the economic environment. Constructing a model with two sets of frictions - the Keynesian friction of costly price adjustment by imperfectly competitive firms and the Monetarist friction of costly exchange of wealth for goods - we...
Persistent link: https://www.econbiz.de/10004993913
Reasoning within the New Neoclassical Synthesis (NNS) we previously recommended that price stability should be the primary objective of monetary policy. We called this a neutral policy because it keeps output at its potential, defined as the outcome of an imperfectly competitive real business...
Persistent link: https://www.econbiz.de/10004993924
In a canonical staggered pricing model, monetary discretion leads to multiple private sector equilibria. The basis for multiplicity is a form of policy complementarity. Specifically, prices set in the current period embed expectations about future policy, and actual future policy responds to...
Persistent link: https://www.econbiz.de/10004993940