Nominal Rigidities, Supply Shocks and Economic Stability
AbstractThis 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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Bibliographic InfoPaper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 024.
Length: 15 pages
Date of creation: Nov 2012
Date of revision:
Price stickiness; economic stability; supply shock; technology shock; cost-push shock.;
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
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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- Flamini, Alessandro & Ascari, Guido & Rossi, Lorenza, 2012.
"Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation,"
Dynare Working Papers
- 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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