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

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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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Bibliographic 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
Date of revision:
Handle: RePEc:cre:crefwp:137

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Keywords: Nominal Rigidity; Real Rigidity; Endogenous Persistence.;

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References

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Citations

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Cited by:
  1. repec:hal:journl:halshs-00115791 is not listed on IDEAS
  2. Michael Gail, 2004. "Sticky Wages in a Stochastic DGE Model of the Business Cycle," Volkswirtschaftliche Diskussionsbeiträge 114-04, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  3. repec:hal:cesptp:halshs-00115791 is not listed on IDEAS
  4. RUGE-MURCIA, Francisco J., 2003. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," Cahiers de recherche 2003-23, Universite de Montreal, Departement de sciences economiques.
  5. Hafedh Bouakez & Emanuela Cardia & Francisco J. Ruge-Murcia, 2002. "Habit Formation and the Persistence of Monetary Shocks," Working Papers 02-27, Bank of Canada.
  6. Michael Gail, 2002. "Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital," Volkswirtschaftliche Diskussionsbeiträge 103-02, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised 05 May 2003.
  7. repec:hal:journl:halshs-00193600 is not listed on IDEAS
  8. Ali Dib, 2001. "An Estimated Canadian DSGE Model with Nominal and Real Rigidities," Working Papers 01-26, Bank of Canada.
  9. 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).
  10. Michael Gail, 2001. "Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices," Volkswirtschaftliche Diskussionsbeiträge 96-01, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised 14 Feb 2003.

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