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Nominal Dynamics in Expected Market-Clearing Models

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This paper investigates the relative performance of two expected market-clearing models vis-à-vis inflation and interest rates dynamics. It is shown that neither a limited participation model, nor a predetermined price model can completely explain the stylized facts regarding nominal dynamics. The two models display the desired properties for the contemporaneous responses to shocks. Yet the impulse response function of the interest rate in the predetermined price model is counterfactual. Both models fail to duplicate the cyclical properties of the nominal variables, making clear that the monetary non-neutrality they embody does not deliver the proper nominal dynamics, hence that passive monetary policy shall not be recommended in this respect. Ce papier étudie la performance relative de deux modèles d'équilibrage anticipé du marché par rapport aux dynamiques de l'inflation et des taux d'intérêt. Nous montrons que ni le modèle à participation limitée, ni le modèle à prix prédéterminés ne peuvent complètement expliquer les faits caractéristiques concernant les variables nominales. Les deux modèles ont les bonnes propriétés pour les réponses immédiates aux chocs. Pourtant, la fonction de réponses du taux d'intérêt est contraire aux faits dans le modèle à prix prédéterminés. Les deux modèles échouent dans la réplication des propriétés cycliques des variables nominales, indiquant clairement que le type de non-neutralité monétaire à l'oeuvre n'engendre pas les dynamiques nominales appropriées, et donc qu'une politique monétaire passive ne devrait pas être recommandée à cet égard.

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  • Christian Calmes & Frederic Dufourt, 2000. "Nominal Dynamics in Expected Market-Clearing Models," Cahiers de recherche CREFE / CREFE Working Papers 126, CREFE, Université du Québec à Montréal.
    • Handle: RePEc:cre:crefwp:126
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    More about this item

    Keywords

    Expected market-clearing models; liquidity effect; passive monetary rules; monetary non-neutrality;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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