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

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

We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our 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 Chicago in its series Working Paper Series with number WP-01-08.

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Date of creation: 2001
Handle: RePEc:fip:fedhwp:wp-01-08
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