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An Econometric U.S. Business Cycle Model with Nominal and Real Rigidities

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Abstract

We estimate an optimization-based model with sticky prices alone (SP model) and one that combines nominal and real rigidities in the form of costly price and labor adjustments (NRR model) over the U.S. postwar time period. We then compare their ability to generate persistent, positive, responses of output, hours and real wages following a positive shock to money supply, and a short-lived, though persistent, decline in hours worked in response to a positive technology shock, as revealed by U.S. postwar evidence. The estimated SP model generates no endogenous real persistence, and this result still prevails with arbitrarily large price adjustment costs. The estimated SP model also generates a persistent rise, rather than a decline, in hours worked in response to a positive technology shock. In contrast, the estimated NRR model delivers persistent increases in output, hours and real wages following a positive money supply shock, and a decline in hours worked after a positive technology shock. En utilisant de données américaines d'après-guerre, nous avons estimé un modèle standard d'équilibre général avec rigidité des prix, et un modèle combinant, à la fois, les rigidités nominale et réelle en forme de coûts d'ajustement de prix et d'emploi. Dans le modèle standard estimé, la réponse des variables réelles à un choc monétaire n'est qu'instantanée. Cependant, le modèle avec rigidités nominale et réelle génère des effets réels significatifs et persistants; et les heures travaillées diminuent à la suite d'un choc technologique favorable.

Suggested Citation

  • Ali Dib & Louis Phaneuf, 2001. "An Econometric U.S. Business Cycle Model with Nominal and Real Rigidities," Cahiers de recherche CREFE / CREFE Working Papers 137, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:137
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    Cited by:

    1. Ali Dib, 2003. "An estimated Canadian DSGE model with nominal and real rigidities," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 949-972, November.
    2. Michael Gail, 2004. "Sticky Wages in a Stochastic DGE Model of the Business Cycle," Volkswirtschaftliche Diskussionsbeiträge 114-04, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    3. Michael Gail, 2002. "Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital," Volkswirtschaftliche Diskussionsbeiträge 103-02, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised 05 May 2003.
    4. Ruge-Murcia, Francisco J., 2007. "Methods to estimate dynamic stochastic general equilibrium models," Journal of Economic Dynamics and Control, Elsevier, pages 2599-2636.
    5. repec:hal:journl:halshs-00115791 is not listed on IDEAS
    6. Chahnez Boudaya, 2006. "Stage-specific technology shocks and employment :could we reconcile with the RBC models ?," Cahiers de la Maison des Sciences Economiques v06043, Université Panthéon-Sorbonne (Paris 1).
    7. Chahnez Boudaya, 2005. "The effects of technological innovations on employment : a new explanation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00193600, HAL.
    8. Bouakez, Hafedh & Cardia, Emanuela & Ruge-Murcia, Francisco J., 2005. "Habit formation and the persistence of monetary shocks," Journal of Monetary Economics, Elsevier, pages 1073-1088.
    9. Michael Gail, 2001. "Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices," Volkswirtschaftliche Diskussionsbeiträge 96-01, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, revised 14 Feb 2003.
    10. Bouakez, Hafedh & Cardia, Emanuela & Ruge-Murcia, Francisco J., 2005. "Habit formation and the persistence of monetary shocks," Journal of Monetary Economics, Elsevier, pages 1073-1088.
    11. repec:hal:journl:halshs-00193600 is not listed on IDEAS

    More about this item

    Keywords

    Nominal Rigidity; Real Rigidity; Endogenous Persistence.;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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