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Rule-of-thumb consumers, productivity and hours

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In this paper we study the transmission mechanisms of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule-of-thumb consumers is also very helpful in accounting for recent empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and real rigidities, play an important role in reproducing the negative response of hours and the delayed responses of output and consumption after a productivity shock.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2007/WP-20075/
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Paper provided by Norges Bank in its series Working Paper with number 2007/05.

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Length: 41 pages
Date of creation: 14 Nov 2007
Handle: RePEc:bno:worpap:2007_05
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