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New Perspectives on Capital and Sticky Prices

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Author Info
Tommy Sveen () (Norges Bank)
Lutz Weinke

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Abstract

We model capital accumulation in a dynamic New-Keynesian model with staggered price setting à la Calvo. It is assumed that firms do not have access to a rental market for capital. We compare our model with an alternative specification where households accumulate capital and rent it to firms. The di?erence in implied equilibrium dynamics is large, as we justify by proposing a simple metric. This result invites us to interpret some of the puzzling empirical findings that have been obtained using models with staggered price setting and a rental market for capital as an artefact of this particular set of assumptions. JEL Classification: E22, E31

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Paper provided by Norges Bank in its series Working Paper with number 2004/03.

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Length: 23 pages
Date of creation: 17 Mar 2004
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Handle: RePEc:bno:worpap:2004_03

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Related research
Keywords: Sticky Prices; Investments; Rental Market JEL;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October. [Downloadable!] (restricted)
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  2. Miguel Casares, 2002. "Time-to-build approach in a sticky price; sticky wage optimizing monetary model," Working Paper Series 147, European Central Bank. [Downloadable!]
  3. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December. [Downloadable!] (restricted)
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  4. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001. "European Inflation Dynamics," NBER Working Papers 8218, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Frank Smets & Rafael Wouters, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series 171, European Central Bank. [Downloadable!]
  8. Jordi Galí & J. David López Salido & Javier Vallés, 2003. "Rule-of-thumb consumers and the design of interest rate rules," Banco de España Working Papers 0320, Banco de España. [Downloadable!]
  9. Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 199822, Rutgers University, Department of Economics. [Downloadable!]
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  10. Tommy Sveen & Lutz Weinke, 2004. "Pitfalls in the Modeling of Forward-Looking Price Setting and Investment Decisions," Economics Working Papers 773, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  11. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April. [Downloadable!] (restricted)
  12. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  13. Rochelle M. Edge, 2000. "Time-to-build, time-to-plan, habit-persistence, and the liquidity effect," International Finance Discussion Papers 673, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. Lutz Weinke & Tommy Sveen, 2003. "Inflation and Output Dynamics with Firm-owned Capital," Economics Working Papers 702, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew T. Levin & Alexei Onatski & John C. Williams & Noah Williams, 2005. "Monetary policy under uncertainty in micro-founded macroeconometric models," Working Papers in Applied Economic Theory 2005-15, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  2. Altig, David & Christiano, Lawrence & Eichenbaum, Martin & Lindé, Jesper, 2004. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Working Paper Series 176, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  3. Gregory de Walque & Frank Smets & Rafael Wouters, 2006. "Firm-specific production factors in a DSGE model with Taylor price setting," Working Paper Series 648, European Central Bank. [Downloadable!]
    Other versions:
  4. Tommy Sveen & Lutz Weinke, 2004. "Pitfalls in the Modeling of Forward-Looking Price Setting and Investment Decisions," Economics Working Papers 773, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  5. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  6. Tommy Sveen & Lutz Weinke, 2004. "Firm-Specific Investment, Sticky Prices, and the Taylor Principle," Economics Working Papers 780, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
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