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Hump-shaped Behavior of Inflation and Dynamic Externality

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  • Takayuki Tsuruga

Abstract

This paper develops a model which can explain the hump-shaped impulse response of inflation to a monetary shock. A standard New Keynesian (NK) model is augmented so as to include dynamic externality with sticky wages and variable capital utilization. In our analysis, we assume purely forward-looking nominal rigidities in nominal prices and wages a la Calvo(1983). Nevertheless, we can show that inflation is hump-shaped under a reasonable range of parameters. It will be also shown that, in order for inflation to be hump-shaped, sticky wages and variable capital utilization are important as well as dynamic externalities.

Suggested Citation

  • Takayuki Tsuruga, 2004. "Hump-shaped Behavior of Inflation and Dynamic Externality," Econometric Society 2004 Far Eastern Meetings 614, Econometric Society.
    • Handle: RePEc:ecm:feam04:614
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    Cited by:

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    2. Iiboshi, Hirokuni & Nishiyama, Shin-Ichi & Watanabe, Toshiaki, 2006. "An Estimated Dynamic Stochastic General Equilibrium Model of the Japanese Economy: A Bayesian Analysis," MPRA Paper 85702, University Library of Munich, Germany.
    3. Akihiko Ikeda, 2020. "Learning-by-doing and business cycles in emerging economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 611-631, August.

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    More about this item

    Keywords

    Inflation; New Keynesian Phillips curve; Sticky-price model; Sticky wages; Variable capital utilization; Dynamic Externality;
    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
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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