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Endogenous Money or Sticky Price? Comment on Monetary Non-neutrality and Inflation Dynamics

  • Wang, Peng-fei

    (Cornell U)

  • Wen, Yi

    (Cornell U)

In this paper we show that the highly persistent inflation dynamics and its lead-lag relationship with output can be explained by a standard flexible price RBC model augmented with endogenous monetary policy. Endogenous monetary policy acting upon the illusion that price is sticky and money is effective can create price movements that appear to indicate price stickiness, although there is none in the economy.

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File URL: https://cae.economics.cornell.edu/04-08.pdf
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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 04-08.

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Date of creation: May 2004
Handle: RePEc:ecl:corcae:04-08
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