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Adjustment Costs and Nominal Rigidities in a Small Open Economy / Anpassungskosten und nominelle Rigiditäten in einer kleinen offenen Volkswirtschaft

Author

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  • Maußner Alfred

    (Lehrstuhl für Volkswirtschaftslehre I, Universität Augsburg, D-86159 Augsburg)

Abstract

What does account for the persistence of monetary shocks in dynamic general equilibrium models of the business cycle? A number of papers have dealt with that question and point at labor market frictions besides those introduced by overlapping wage contracts.In this paper I investigate an obvious source of persistence, namely small adjustment costs of labor at the firm level. These introduce indeed hump shaped impulse responses of hours worked in simulated time series. Compared with a benchmark model without nominal and real frictions my model outperforms the former in most respects.However, its account of the time series properties of monetary variables is not satisfactory. This holds true for closely related models that change the current period utility function, that introduce money into the utility function, or that posit a cash in advance constraint. I take this as suggestive to think about more sophisticated models of money demand.

Suggested Citation

  • Maußner Alfred, 2002. "Adjustment Costs and Nominal Rigidities in a Small Open Economy / Anpassungskosten und nominelle Rigiditäten in einer kleinen offenen Volkswirtschaft," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 222(4), pages 463-489, August.
    • Handle: RePEc:jns:jbstat:v:222:y:2002:i:4:p:463-489
    DOI: 10.1515/jbnst-2002-0405
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    References listed on IDEAS

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    1. Kremer, Jana, 2004. "Fiscal rules and monetary policy in a dynamic stochastic general equilibrium model," Discussion Paper Series 1: Economic Studies 2004,35, Deutsche Bundesbank.

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