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Nominal rigidities and the dynamic effects of a shock to monetary policy

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  • Lawrence J. Christiano
  • Martin S. Eichenbaum
  • Charles L. Evans

Abstract

We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts of average duration three quarters, and variable capital utilization.

Suggested Citation

  • Lawrence J. Christiano & Martin S. Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  • Handle: RePEc:fip:fedfpr:y:2001:i:jun:x:5
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    More about this item

    Keywords

    Capital; Wages; Monetary policy;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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