Journal of Political Economy Vol. 113 No. 1 2005

Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

Lawrence J. Christiano^1,2; Martin Eichenbaum^1,2; Charles L. Evans²

¹ National Bureau of Economic Research · ² Federal Reserve Bank of Chicago

Abstract

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.

DOI

10.1086/426038

Volume

113

Issue

1

Pages

1-45

Language

en

Sources

crossref bibtex:phds-export.bib openalex

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