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Downward nominal rigidity and monetary policy

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  • Anthony Yates

Abstract

This paper addresses the question of whether there is downward rigidity in money wages and prices. It is an issue that is relevant to the choice of the level of the inflation target, as it has been argued that targeting too low a level of inflation will be harmful when downward rigidities exist. The existence of such rigidities is questioned from a theoretical perspective on the basis of the very strict conditions that would have to apply. Also it is argued that concern for 'fairness' or the presence of 'money illusion' do not in themselves justify positive inflation. Empirical evidence is investigated and it is found that the existence of downward rigidities is not proven.

Suggested Citation

  • Anthony Yates, 1998. "Downward nominal rigidity and monetary policy," Bank of England Staff Working Paper series 82, Bank of England.
    • Handle: RePEc:boe:boeewp:82
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Policy utopianism
      by chris dillow in Stumbling and Mumbling on 2012-05-03 18:35:48

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    Cited by:

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    2. Camba-Méndez, Gonzalo & Garcí­a, Juan Angel & Rodriguez-Palenzuela, Diego, 2003. "Relevant economic issues concerning the optimal rate of inflation," Working Paper Series 278, European Central Bank.
    3. Steinar Holden, 2005. "Wage Formation under Low Inflation," Springer Books, in: Hannu Piekkola & Kenneth Snellman (ed.), Collective Bargaining and Wage Formation, pages 39-57, Springer.
    4. Dhyne, Emmanuel & Fuss, Catherine & Pesaran, M. Hashem & Sevestre, Patrick, 2011. "Lumpy Price Adjustments: A Microeconometric Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 529-540.
    5. Antonia López-Villavicencio & Valérie Mignon, 2013. "Nonlinearity of the inflation-output trade-off and time-varying price rigidity," EconomiX Working Papers 2013-1, University of Paris Nanterre, EconomiX.
    6. Andersen, Torben M., 2002. "Nominal rigidities and the optimal rate of inflation," European Journal of Political Economy, Elsevier, vol. 18(2), pages 375-389, June.
    7. Luc Aucremanne & Guy Brys & Peter J Rousseeuw & Anja Struyf & Mia Hubert, 2003. "Inflation, relative prices and nominal rigidities," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 81-105, Bank for International Settlements.
    8. Dufrenot, Gilles & Mignon, Valerie & Peguin-Feissolle, Anne, 2004. "Business cycles asymmetry and monetary policy: a further investigation using MRSTAR models," Economic Modelling, Elsevier, vol. 21(1), pages 37-71, January.
    9. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur & Yiangou, Jonathan, 2019. "A tale of two decades: the ECB’s monetary policy at 20," Working Paper Series 2346, European Central Bank.
    10. Sin-Yu Ho & Bernard Njindan Iyke, 2019. "Unemployment And Inflation: Evidence Of A Nonlinear Phillips Curve In The Eurozone," Journal of Developing Areas, Tennessee State University, College of Business, vol. 53(4), pages 151-163, Fall.
    11. Ángel Estrada & Ignacio Hernando, 1999. "Microeconomic Price Adjustments and Inflation: Evidence from Spanish Sectoral Data," Working Papers 9921, Banco de España.
    12. David Mayes & Matti Viren, 2002. "Asymmetry and the Problem of Aggregation in the Euro Area," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 29(1), pages 47-73, March.
    13. Sarah M. Lein & Eva Köberl, 2009. "Capacity Utilisation, Constraints and Price Adjustments under the Microscope," Working Papers 2009-06, Swiss National Bank.
    14. Gilles DUFRENOT & Val=E9rie MIGNON & Anne PEGUIN-FEISSOLE, 2003. "Business cycles asymmetry and monetary policy: a further investigatio= n=20 using MRSTAR models," Macroeconomics 0309002, University Library of Munich, Germany.
    15. Bakhshi, Hasan & Ben Martin & Tony Yates, 2002. "How uncertain are the welfare costs of inflation?," Royal Economic Society Annual Conference 2002 12, Royal Economic Society.
    16. David Mayes & Matti Viren, 2002. "Asymmetry and the Problem of Aggregation in the Euro Area," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 29(1), pages 47-73, March.
    17. Mayes, David & Virén, Matti, 2004. "Asymmetries in the Euro area economy," Bank of Finland Research Discussion Papers 9/2004, Bank of Finland.
    18. Latsos Sophia, 2018. "Real Wage Effects of Japan’s Monetary Policy," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 69(1), pages 177-215, July.
    19. Andersen, Torben M., 1999. "Nominal rigidities and the optimal rate of inflation," CFS Working Paper Series 1999/08, Center for Financial Studies (CFS).
    20. David G. Mayes & Matti Virén, 2004. "Asymmetries in the Euro area economy," Macroeconomics 0404024, University Library of Munich, Germany.
    21. Fagan, Gabriel & Messina, Julián, 2009. "Downward wage rigidity and optimal steady-state inflation," Working Paper Series 1048, European Central Bank.
    22. Burhan Biçer & Almila Burgac Cil, 2023. "Symmetric and Asymmetric Dynamics of Output Gap and Inflation Relation for Turkish Economy," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(5), pages 520-549.
    23. Fabiani, Silvia & Gattulli, Angela & Sabbatini, Roberto, 2004. "The pricing behaviour of Italian firms: new survey evidence on price stickiness," Working Paper Series 333, European Central Bank.
    24. Tomáš Frömmel & Pavel Potužák, 2020. "Mohou být strnulosti nominálních mezd problémem v situaci deflace způsobené hospodářským růstem? [Is Nominal Wage Rigidity a Problem in the Case of Deflation Driven by Economic Growth?]," Politická ekonomie, Prague University of Economics and Business, vol. 2020(3), pages 267-289.
    25. Nishizaki, Kenji & Watanabe, Tsutomu, 2000. "Output-Inflation Trade-Off at Near-Zero Inflation Rates," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 304-326, December.

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