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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)

Additional information is available for the following registered author(s):

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://pages.usherbrooke.ca/gredi/wpapers/GREDI-0918.pdf
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File Function: First version, 2009
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Publisher 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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Related research
Keywords: Pigou cycles; monetary policy;

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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