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Nominal rigidities and the dynamic effects of a shock to monetary policy

  • Lawrence J. Christiano
  • Martin Eichenbaum
  • Charles L. Evans

The authors’ model, embodying moderate amounts of nominal rigidities, accounts for the observed inertia in inflation and persistence in output. The key features of their model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts of average duration (three quarters) and variable capital utilization.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0107.

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Date of creation: 2001
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Handle: RePEc:fip:fedcwp:0107
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