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Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy
We present a model embodying moderate amounts of nominal rigidities that 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 that have an average duration of three quarters and variable capital utilization.
Money, Sticky Wages, and the Great Depression
Money, Sticky Wages, and the Great Depression by Michael D. Bordo, Christopher J. Erceg and Charles L. Evans. Published in volume 90, issue 5, pages 1447-1463 of American Economic Review, December 2000