IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Nominal Dynamics in Expected Market-Clearing Models

This paper investigates the relative performance of two expected market-clearing models vis-à-vis inflation and interest rates dynamics. It is shown that neither a limited participation model, nor a predetermined price model can completely explain the stylized facts regarding nominal dynamics. The two models display the desired properties for the contemporaneous responses to shocks. Yet the impulse response function of the interest rate in the predetermined price model is counterfactual. Both models fail to duplicate the cyclical properties of the nominal variables, making clear that the monetary non-neutrality they embody does not deliver the proper nominal dynamics, hence that passive monetary policy shall not be recommended in this respect. Ce papier étudie la performance relative de deux modèles d'équilibrage anticipé du marché par rapport aux dynamiques de l'inflation et des taux d'intérêt. Nous montrons que ni le modèle à participation limitée, ni le modèle à prix prédéterminés ne peuvent complètement expliquer les faits caractéristiques concernant les variables nominales. Les deux modèles ont les bonnes propriétés pour les réponses immédiates aux chocs. Pourtant, la fonction de réponses du taux d'intérêt est contraire aux faits dans le modèle à prix prédéterminés. Les deux modèles échouent dans la réplication des propriétés cycliques des variables nominales, indiquant clairement que le type de non-neutralité monétaire à l'oeuvre n'engendre pas les dynamiques nominales appropriées, et donc qu'une politique monétaire passive ne devrait pas être recommandée à cet égard.

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.

File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah126.ps
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.unites.uqam.ca/eco/CREFE/cahiers/cah126.ps [301 Moved Permanently]--> http://www.economie.uqam.ca/CREFE/cahiers/cah126.ps [301 Moved Permanently]--> http://economie.esg.uqam.ca/CREFE/cahiers/cah126.ps). If this is indeed the case, please notify (Stéphane Pallage)


File Function: Main text
Download Restriction: no

File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah126.pdf
Our checks indicate that this address may not be valid because: 500 Internal Server Error (http://www.unites.uqam.ca/eco/CREFE/cahiers/cah126.pdf [301 Moved Permanently]--> http://www.economie.uqam.ca/CREFE/cahiers/cah126.pdf [301 Moved Permanently]--> http://economie.esg.uqam.ca/CREFE/cahiers/cah126.pdf). If this is indeed the case, please notify (Stéphane Pallage)


File Function: Main text
Download Restriction: no

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 126.

as
in new window

Length: 23 pages
Date of creation: Dec 2000
Date of revision:
Handle: RePEc:cre:crefwp:126
Contact details of provider: Postal: P.O. Box 8888, Downtown Station, Montreal (Canada) Quebec, H3C 3P8
Phone: (514) 987-6181
Fax: (514) 987-8494
Web page: http://ideas.uqam.ca/CREFE/
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  2. Beaudry, Paul & Guay, Alain, 1996. "What do interest rates reveal about the functioning of real business cycle models?," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1661-1682.
  3. Julio J. Rotemberg, 1994. "Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model," NBER Working Papers 4948, National Bureau of Economic Research, Inc.
  4. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are Technology Improvements Contractionary?," NBER Working Papers 10592, National Bureau of Economic Research, Inc.
  5. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
  6. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
  7. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
  8. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  9. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  10. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
  11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  12. Nason, James M & Cogley, Timothy, 1994. "Testing the Implications of Long-Run Neutrality for Monetary Business Cycle Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S37-70, Suppl. De.
  13. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  14. Cochrane, John H., 1998. "What do the VARs mean? Measuring the output effects of monetary policy," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 277-300, April.
  15. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Staff Report 227, Federal Reserve Bank of Minneapolis.
  16. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Timothy Cook, 1989. "Determinants of the federal funds rate: 1979-1982," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 3-19.
  18. Robert G. King & Mark W. Watson, 1995. "Money, prices, interest rates and the business cycle," Working Paper Series, Macroeconomic Issues 95-10, Federal Reserve Bank of Chicago.
  19. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  20. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
  21. Hairault, J.O. & Portier, F., 1992. "Money New-Keynesian Macroeconomics and the Business Cycles," Papiers d'Economie Mathématique et Applications 92.32, Université Panthéon-Sorbonne (Paris 1).
  22. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  23. Thomas F. Cooley & Gary D. Hansen, 1997. "Unanticipated money growth and the business cycle reconsidered," Proceedings, Federal Reserve Bank of Cleveland, issue Nov, pages 624-652.
  24. Steve Ambler & Alain Guay & Louis Phaneuf, 1999. "Wage Contracts and Labor Adjustment Costs as Endogenous Propagation Mechanisms," Cahiers de recherche CREFE / CREFE Working Papers 69, CREFE, Université du Québec à Montréal.
  25. Cook, David, 1999. "The liquidity effect and money demand," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 377-390, April.
  26. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
  27. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  28. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  29. Cooley, Thomas F. & Hansen, Gary D., 1997. "Unanticipated Money," Economics Series 42, Institute for Advanced Studies.
  30. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cre:crefwp:126. 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: (Stéphane Pallage)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.