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Nominal Rigidities, Supply Shocks and Economic Stability

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Author Info

  • Guido Ascari

    ()
    (Department of Economics and Management, University of Pavia)

  • Alessandro Flamini

    ()
    (Department of Economics and Management, University of Pavia)

  • Lorenza Rossi

    ()
    (Department of Economics and Management, University of Pavia)

Abstract

This paper shows that nominal rigidities in terms of price stickiness acts as a powerful supply-shock filter that reduces the overall economic instability. Considering a range of admissable values for price stickiness, the volatility of inflation, output and interest rate induced by technology or cost-push shocks can vary up to 50%. The paper suggests a word of caution for policies designed to increase price flexibility which would expose the economy to more economic instability in presence of supply shocks.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0024.pdf
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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 024.

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Length: 15 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:pav:demwpp:024

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Related research

Keywords: Price stickiness; economic stability; supply shock; technology shock; cost-push shock.;

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Cited by:
  1. Alessandro Flamini & Guido Ascari & Lorenza Rossi, 2012. "Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation," DEM Working Papers Series 025, University of Pavia, Department of Economics and Management.

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