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A note on NNS models: introducing physical capital; avoiding rationing

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  • Danthine, Jean-Pierre
  • Donaldson, John B.

Abstract

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 prices. Second, it warns against a possible logical inconsistency whereby calibrated NNS models are implicitly assuming that some (price-constrained) firms are willing and able to sell their output below cost.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 77 (2002)
Issue (Month): 3 (November)
Pages: 433-437

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Handle: RePEc:eee:ecolet:v:77:y:2002:i:3:p:433-437

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  1. Robert G. King & Alexander L. Wolman, 1996. "Inflation targeting in a St. Louis model of the 21st century," Review, Federal Reserve Bank of St. Louis, issue May, pages 83-107.
  2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  3. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Sticky price models of the business cycle: can the contract multiplier solve the persistence problem?," Staff Report, Federal Reserve Bank of Minneapolis 217, Federal Reserve Bank of Minneapolis.
  4. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  5. Miles S. Kimball & Michael Woodford, 1994. "The quantitative analysis of the basic neomonetarist model," Proceedings, Federal Reserve Bank of Cleveland, pages 1241-1289.
  6. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  7. Hairault, Jean-Olivier & Portier, Franck, 1993. "Money, New-Keynesian macroeconomics and the business cycle," European Economic Review, Elsevier, Elsevier, vol. 37(8), pages 1533-1568, December.
  8. King, Robert G & Watson, Mark W, 1996. "Money, Prices, Interest Rates and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 35-53, February.
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  10. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(2), pages 655-690, May.
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Cited by:
  1. Paustian, Matthias & von Hagen, Jürgen, 2008. "The Role of Contracting Schemes for Assessing the Welfare Costs of Nominal Rigidities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6726, C.E.P.R. Discussion Papers.
  2. Hashmat Khan, 2004. "Price-setting behaviour, competition, and mark-up shocks in the New Keynesian model," Bank of England working papers 240, Bank of England.
  3. Matthias Paustian, 2005. "The role of contracting schemes for the welfare costs of nominal rigidities," Computing in Economics and Finance 2005, Society for Computational Economics 196, Society for Computational Economics.
  4. de Walque, Gregory & Smets, Frank & Wouters, Rafael, 2006. "Firm-Specific Production Factors in a DSGE Model with Taylor Price Setting," MPRA Paper 810, University Library of Munich, Germany.
  5. Jean-Pierre DANTHINE & André KURMANN, 2002. "Fair Wages in a New Keynesian Model of the Business Cycle," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 02.10, Université de Lausanne, Faculté des HEC, DEEP.
  6. Francesco FURLANETTO, 2007. "Fiscal Shocks and the Consumption Response when Wages are Sticky," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 07.11, Université de Lausanne, Faculté des HEC, DEEP.
  7. Boris Hofmann & Matthias Paustian, 2005. "The Persistence and Rigidity of wages and prices," Money Macro and Finance (MMF) Research Group Conference 2005, Money Macro and Finance Research Group 71, Money Macro and Finance Research Group.
  8. Matthias Paustian, 2004. "Can Wage and Price Stickiness Account for Sizeable Costs of Business Cycle Fluctuations?," Bonn Econ Discussion Papers, University of Bonn, Germany bgse18_2004, University of Bonn, Germany.
  9. Paustian, Matthias & von Hagen, Jürgen, 2012. "How relevant are nominal contracting schemes for monetary policy?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(3), pages 723-740.

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