Nominal Rigidity and Monetary Uncertainty
A dynamic, stochastic optimizing macromodel with predetermined money wages and labour market monopoly power is used to examine the effect on current macroeconomic variables of a temporary increase in variability of the future money supply. As a benchmark, we show that under perfect wage-price flexibility `uncertainty irrelevance' holds, when monetary uncertainty is appropriately defined. The introduction of wage stickiness causes future monetary uncertainty to raise the nominal interest rate, with a deflationary impact on current price and output, for plausible parameterizations. It also causes the money wage to be set higher, increasing the `natural' rate of unemployment.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Feb 1994|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- Lars E. O. Svensson, 1986. "Sticky Goods Prices, Flexible Asset Prices, Monopolistic Competition, and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 385-405.
- Driffill, John & Mizon, Grayham Ernest & Ulph, Alistair Mitchell, 1989.
"Costs of Inflation,"
CEPR Discussion Papers
293, C.E.P.R. Discussion Papers.
- Gertler, Mark & Grinols, Earl, 1982. "Monetary randomness and investment," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 239-258.
- Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-99.
- Alberto Giovannini, 1987. "Uncertainty and Liquidity," NBER Working Papers 2296, National Bureau of Economic Research, Inc.
- Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, December.
- Lucas, Robert E, Jr & Stokey, Nancy L, 1987.
"Money and Interest in a Cash-in-Advance Economy,"
Econometric Society, vol. 55(3), pages 491-513, May.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
- Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Bianconi, Marcelo, 1992. "Monetary growth innovations in a simple cash-in-advance asset-pricing model," European Economic Review, Elsevier, vol. 36(8), pages 1501-1521, December.
- Evans, George W, 1989. "The Conduct of Monetary Policy and the Natural Rate of Unemployment: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 498-507, November.
- Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
- Stulz, ReneM., 1986. "Interest rates and monetary policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 17(3), pages 331-347, May.
- Hairault, Jean-Olivier & Portier, Franck, 1993.
"Money, New-Keynesian macroeconomics and the business cycle,"
European Economic Review,
Elsevier, vol. 37(8), pages 1533-1568, December.
- Hairault, J.O. & Portier, F., 1992. "Money New-Keynesian Macroeconomics and the Business Cycles," Papiers d'Economie MathÃ©matique et Applications 92.32, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Grinols, E.L. & Turnovsky, S.J., 1992.
"Risk, the Financial Market and Macroeconomic Equilibrium,"
92-01, University of Washington, Department of Economics.
- Grinols, Earl L. & Turnovsky, Stephen J., 1993. "Risk, the financial market, and macroeconomic equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 1-36.
- Grinols, E.L. & Turnovsky, S.J., 1992. "Risk, the Financial Market and Macroeconomic Equilibrium," Discussion Papers in Economics at the University of Washington 92-01, Department of Economics at the University of Washington.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Bénassy, Jean-Pascal, 1993.
"Money and wage contracts in an optimizing model of the business cycle,"
CEPREMAP Working Papers (Couverture Orange)
- Benassy, Jean-Pascal, 1995. "Money and wage contracts in an optimizing model of the business cycle," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 303-315, April.
- Rankin, Neil, 1994.
"Monetary uncertainty in discrete-time utility-of-money models,"
Elsevier, vol. 44(1-2), pages 127-132.
- Rankin, N., 1993. "Monetary Uncertainty in Discrete-Time Utility-of-Money Models," The Warwick Economics Research Paper Series (TWERPS) 408, University of Warwick, Department of Economics.
- Kimball, Miles S, 1990.
"Precautionary Saving in the Small and in the Large,"
Econometric Society, vol. 58(1), pages 53-73, January.
- Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
- Katz, Eliakim & Rosenberg, Jacob, 1983. "Inflation Variability, Real-Wage Variability and Production Inefficiency," Economica, London School of Economics and Political Science, vol. 50(200), pages 469-75, November.
- Dixon, Huw David & Rankin, Neil, 1994.
"Imperfect Competition and Macroeconomics: A Survey,"
Oxford Economic Papers,
Oxford University Press, vol. 46(2), pages 171-99, April.
- Dixon, H. & Rankin, N., 1991. "Imperfect Competition and Macroeconomics: a Survey," The Warwick Economics Research Paper Series (TWERPS) 387, University of Warwick, Department of Economics.
- Dixon, Huw David & Rankin, Neil, 1992. "Imperfect Competition and Macroeconomics: A Survey," CEPR Discussion Papers 636, C.E.P.R. Discussion Papers.
- Giovannini, Alberto, 1989. "Uncertainty and liquidity," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 239-258, March.
- Sorensen, Jan Rose, 1992. " Uncertainty and Monetary Policy in a Wage Bargaining Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(3), pages 443-55.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:890. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.