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Nominal Rigidity and Monetary Uncertainty

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  • Rankin, Neil

Abstract

A dynamic, stochastic optimizing macromodel with predetermined money wages and labour market monopoly power is used to examine the effect on current macroeconomic variables of a temporary increase in variability of the future money supply. As a benchmark, we show that under perfect wage-price flexibility `uncertainty irrelevance' holds, when monetary uncertainty is appropriately defined. The introduction of wage stickiness causes future monetary uncertainty to raise the nominal interest rate, with a deflationary impact on current price and output, for plausible parameterizations. It also causes the money wage to be set higher, increasing the `natural' rate of unemployment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 890.

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Date of creation: Feb 1994
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Handle: RePEc:cpr:ceprdp:890

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Keywords: Interest Rates; Monetary Uncertainty; Nominal Rigidity; Output;

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  1. Giovannini, Alberto, 1989. "Uncertainty and liquidity," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(2), pages 239-258, March.
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Citations

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Cited by:
  1. Casares, Miguel, 2009. "Wage setting actors and sticky wages: Implications for the business cycle and optimal monetary policy," Economic Modelling, Elsevier, vol. 26(3), pages 571-585, May.
  2. Sutherland, Alan, 2005. "Incomplete pass-through and the welfare effects of exchange rate variability," Journal of International Economics, Elsevier, vol. 65(2), pages 375-399, March.
  3. K Blackburn & A Pelloni, 2001. "On the Relationship Between Growth and Volatility in Learning-by-Doing Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 01, Economics, The Univeristy of Manchester.
  4. Ascari, Guido & Rankin, Neil, 2002. "Staggered wages and output dynamics under disinflation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(4), pages 653-680, April.
  5. Sutherland, Alan, 2002. "Cost-Push Shocks and Monetary Policy and Monetary Policy," Discussion Paper Series 1: Economic Studies 2002,27, Deutsche Bundesbank, Research Centre.
  6. Alan Sutherland, 2005. "The Expenditure Switching Effect, Welfare and Monetary Policy in a Small Open Economy," The Institute for International Integration Studies Discussion Paper Series iiisdp022, IIIS.
  7. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
  8. D Varvarigos, 2004. "Non-neutrality and Uncertainty in a Model of Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 41, Economics, The Univeristy of Manchester.
  9. Miguel Casares, 2007. "Wage Setting Actors, StickyWages, and Optimal Monetary Policy," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra, Departamento de Economía - Universidad Pública de Navarra 0701, Departamento de Economía - Universidad Pública de Navarra.
  10. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 2(03), pages 383-400, September.
  11. Mark Roberts, . "International factor mobility and long-run economic growth," Discussion Papers 09/07, University of Nottingham, School of Economics.

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