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Nominal Rigidities, Monetary Policy and Pigou Cycles

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Author Info

  • Stéphane Auray

    ()
    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Paul Gomme

    ()
    (Concordia University, CIREQ)

  • Shen Guo

    ()
    (China Academy of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China)

Abstract

A chief goal of the Pigou cycle literature is to generate a boom in response to news of a future increase in productivity, and a bust if this improvement does not in fact take place. We nd that monetary policy can generate Pigou cycles in a two sector model with durables and non-durables, and nominal price rigidities { even when the Ramsey-optimal policy displays no such cycles. Estimated interest rate rules are a good t to data simulated under the Ramsey policy, implying that policymakers could come close to replicating the Ramsey-optimal policy.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0918.pdf
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Bibliographic Info

Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 09-18.

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Length: 40 pages
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:shr:wpaper:09-18

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Keywords: Pigou cycles; monetary policy;

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Citations

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Cited by:
  1. Sandra Gomes & Nikolay Iskrev & Caterina Mendicino, 2013. "Monetary policy shocks: We got news!," Working Papers w201307, Banco de Portugal, Economics and Research Department.
  2. Beaudry, Paul & Portier, Franck, 2013. "News Driven Business Cycles: Insights and Challenges," CEPR Discussion Papers 9624, C.E.P.R. Discussion Papers.
  3. Born, Benjamin & Peter, Alexandra & Pfeifer, Johannes, 2013. "Fiscal news and macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2582-2601.

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