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An Econometric U.S. Business Cycle Model with Nominal and Real Rigidities

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Author Info
Ali Dib (Bank of Canada)
Louis Phaneuf () (Center for Research on Economic Fluctuations and Employment, UQAM)

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Abstract

We estimate an optimization-based model with sticky prices alone (SP model) and one that combines nominal and real rigidities in the form of costly price and labor adjustments (NRR model) over the U.S. postwar time period. We then compare their ability to generate persistent, positive, responses of output, hours and real wages following a positive shock to money supply, and a short-lived, though persistent, decline in hours worked in response to a positive technology shock, as revealed by U.S. postwar evidence. The estimated SP model generates no endogenous real persistence, and this result still prevails with arbitrarily large price adjustment costs. The estimated SP model also generates a persistent rise, rather than a decline, in hours worked in response to a positive technology shock. In contrast, the estimated NRR model delivers persistent increases in output, hours and real wages following a positive money supply shock, and a decline in hours worked after a positive technology shock.

En utilisant de données américaines d'après-guerre, nous avons estimé un modèle standard d'équilibre général avec rigidité des prix, et un modèle combinant, à la fois, les rigidités nominale et réelle en forme de coûts d'ajustement de prix et d'emploi. Dans le modèle standard estimé, la réponse des variables réelles à un choc monétaire n'est qu'instantanée. Cependant, le modèle avec rigidités nominale et réelle génère des effets réels significatifs et persistants; et les heures travaillées diminuent à la suite d'un choc technologique favorable.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 137.

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Length: 33 pages
Date of creation: Aug 2001
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Handle: RePEc:cre:crefwp:137

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Related research
Keywords: Nominal Rigidity Real Rigidity Endogenous Persistence.

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Find related papers by 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

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References listed on IDEAS
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Full references

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. Ali Dib, 2001. "An Estimated Canadian DSGE Model with Nominal and Real Rigidities," Working Papers 01-26, Bank of Canada. [Downloadable!]
    Other versions:
  2. Michael Gail, 2004. "Sticky Wages in a Stochastic DGE Model of the Business Cycle," Volkswirtschaftliche Diskussionsbeitraege 114-04, Universitaet Siegen, Fachbereich Wirtschaftswissenschaften. [Downloadable!]
  3. Michael Gail, 2001. "Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices," Volkswirtschaftliche Diskussionsbeitraege 96-01, Universitaet Siegen, Fachbereich Wirtschaftswissenschaften, revised 14 Feb 2003. [Downloadable!]
  4. Chahnez Boudaya, 2005. "The effects of technological innovations on employment : a new explanation," Cahiers de la Maison des Sciences Economiques v05013, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  5. BOUAKEZ, Hafedh & CARDIA, Emanuela & RUGE-MURCIA, Francisco J., 2002. "Habit Formation and the Persistence of Monetary Shocks," Cahiers de recherche 2002-08, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  6. Michael Gail, 2002. "Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital," Volkswirtschaftliche Diskussionsbeitraege 103-02, Universitaet Siegen, Fachbereich Wirtschaftswissenschaften, revised 05 May 2003. [Downloadable!]
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  7. RUGE-MURCIA, Francisco J., 2003. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," Cahiers de recherche 17-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ. [Downloadable!]
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