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Abstract

This paper constructs a dynamic macroeconomic model with less-than-perfect price flexibility which has a classical side consistent with real business cycle theory, augmented by investment adjustment costs; increasing returns to scale; and a new, flexible formalization of imperfect competition. Something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly. Even with investment adjustment costs, monetary expansions are found to raise the real interest rate. The determinants of real rigidity and the macroeconomic rate of price adjustment are investigated. Copyright 1995 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 27 (1995)
Issue (Month): 4 (November)
Pages: 1241-77

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Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:4:p:1241-77

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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• E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
• E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
   
   • Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
   • Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report 102, Federal Reserve Bank of Minneapolis.
2. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
   
   • Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
3. Susanto Basu & John G. Fernald, 1999. "Are Apparent Productive Spillovers a Figment of Specification Error?," NBER Working Papers 5073, National Bureau of Economic Research, Inc.
   
   • Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August.
   • Susanto Basu & John G. Fernald, 1994. "Are apparent productive spillovers a figment of specification error?," International Finance Discussion Papers 463, Board of Governors of the Federal Reserve System (U.S.).
   • Basu, S. & Fernald, J.G., 1993. "Are Apparent Productive Spillovers a Figment of Specification Error," Papers 93-22, Michigan - Center for Research on Economic & Social Theory.
4. Woglom, Geoffrey, 1982. "Underemployment Equilibrium with Rational Expectations," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 89-107, February.
5. Robert E. Hall, 1988. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
   
   • Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
6. Basu, S., 1993. "Procyclical Productivity: Overhead Inputs or Cyclical Utilization," Papers 93-25, Michigan - Center for Research on Economic & Social Theory.
7. Susanto Basu & John G. Fernald, 1994. "Constant returns and small markups in U.S. manufacturing," International Finance Discussion Papers 483, Board of Governors of the Federal Reserve System (U.S.).
   
   • Basu, S.: Fernald, J.G., 1993. "Constant Returns and Small Markups in U.S. Manufacturing," Papers 93-19, Michigan - Center for Research on Economic & Social Theory.
8. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc.
   
   • Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 183-203, April.
9. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
10. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    
    • Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
11. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
12. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:

1. What I learned in econ grad school, Part 2
   by Noah in Noahpinion on 2011-05-05 22:53:00
2. Michael Woodford: Revolución y Evolución en la Macroeconomía del siglo XX
   by Enrique Bour in Foco Económico on 2011-03-16 12:00:00
3. The Neomonetarist Perspective
   by ? in Confessions of a Supply-Side Liberal on 2012-12-20 08:02:04

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