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Rule of Thumb Consumers Meet Sticky Wages

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Author Info
Colciago, Andrea

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Abstract

It has been argued that rule of thumb consumers substantially alter the determinacy properties of simple interest rate rules and the dynamics of an otherwise standard New-keynesian model. In this paper we show that nominal wage stickiness helps re-establishing standard results. Key findings are that wage stickiness i) affects the shape of determinacy regions in the parameters space, restoring the relevance of the Taylor principle for the conduct of monetary policy; ii) implies that a rise in consumption in response to an innovation in government spending is not a robust feature of the model.

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File URL: http://mpra.ub.uni-muenchen.de/3275/
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File URL: http://mpra.ub.uni-muenchen.de/3756/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3275.

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Date of creation: 01 Jun 2006
Date of revision: 27 Apr 2007
Handle: RePEc:pra:mprapa:3275

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Related research
Keywords: Rule of Thumb Consumers Sticky Wages Determinacy Fiscal Shocks

Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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References listed on IDEAS
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  1. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March. [Downloadable!] (restricted)
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  2. Andrew T. Levin & Alexei Onatski & John C. Williams & Noah Williams, 2005. "Monetary policy under uncertainty in micro-founded macroeconometric models," Working Papers in Applied Economic Theory 2005-15, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  3. Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," CEPR Discussion Papers 4334, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Carlstrom, Charles T. & Fuerst, Timothy S., 2005. "Investment and interest rate policy: a discrete time analysis," Journal of Economic Theory, Elsevier, vol. 123(1), pages 4-20, July. [Downloadable!] (restricted)
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  5. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November. [Downloadable!] (restricted)
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  6. Giovanni Di Bartolomeo & Lorenza Rossi, 2005. "Efficacy of Monetary Policy and Limited Asset Market Participation," Macroeconomics 0508027, EconWPA. [Downloadable!]
  7. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May. [Downloadable!] (restricted)
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  8. Florin Bilbiie, 2005. "Limited Asset Markets Participation, Monetary Policy and (Inverted) Keynesian Logic," Economics Papers 2005-W09, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  9. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October. [Downloadable!] (restricted)
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  10. Galí, Jordi & Lopez-Salido, Jose David & Vallés Liberal, Javier, 2004. "Rule-of-Thumb Consumers and the Design of Interest Rate Rules," CEPR Discussion Papers 4347, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2004. "Can Fiscal Policy Help Macroeconomic Stabilisation? Evidence from a New Keynesian Model with Liquidity Constraints," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  12. repec:fth:harver:1435 is not listed on IDEAS
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