The role of contracting schemes for the welfare costs of nominal rigidities over the business cycle

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The role of contracting schemes for the welfare costs of nominal rigidities over the business cycle

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Paustian, Matthias

Abstract

What is the role of contracting schemes for the welfare costs of nominal rigidities over the business cycle? We examine 4 different modeling schemes of nominal rigidities that all have the same average duration of contracts. We find that Calvo (1983) wage and price contracts may deliver welfare costs that are 3-4 times higher than Taylor (1980) contracts. However, that result is sensitive to the monetary policy rule. We discuss the implications of modeling capital mobility and of adopting the Mankiw and Reis (2002) sticky information scheme for the welfare costs of nominal rigidities. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,22.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp1:4216

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-08-05 (All new papers)
NEP-CBA-2006-08-05 (Central Banking)
NEP-MAC-2006-08-05 (Macroeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre. [Downloadable!]

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Engin Kara, 2006. "Optimal monetary policy in the generalized Taylor economy," Working Paper Series 673, European Central Bank. [Downloadable!]
David Aikman & Matthias Paustian, . "Bank capital, asset prices and monetary policy," Bank of England working papers 305, Bank of England. [Downloadable!]

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This page was last updated on 2009-12-2.

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