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Nominal wage contracts, adjustment costs and real persistence of monetary shocks

Author

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  • C.K. Folkertsma

Abstract

This paper describes a model in which monetary shocks have persistent real effects. Starting from the limited participation model of Christiano (1991) with capital adjustment costs as suggested by Dow (1995) it is confirmed that costs of equipment installation and restrictions on consumer portfolio choices alone cannot account for the observed effects of monetary policy. However, after introducing nominal wage contracts as a third friction, the model generates real effects of monetary shocks. It is shown that these real effects are highly persistent for a realistic size of adjustment costs and strongly autocorrelated money growth shocks which are typical for Europe.}

Suggested Citation

  • C.K. Folkertsma, 1998. "Nominal wage contracts, adjustment costs and real persistence of monetary shocks," WO Research Memoranda (discontinued) 566, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:wormem:566
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    Cited by:

    1. Roberto Duncan, 2005. "How Well Does a Monetary Dynamics Equilibrium Model Account for Chilean Data?," Central Banking, Analysis, and Economic Policies Book Series,in: RĂ³mulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 6, pages 189-220 Central Bank of Chile.

    More about this item

    Keywords

    Monetary general equilibrium model; monetary transmission; liquidityeffects; nominal wage contracts;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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