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News Shocks, Price Levels, and Monetary Policy

  • Ryo Jinnai

This paper presents a model in which improvement in the future TFP is, on impact, associated with increases in consumption, stock prices, and real wages, and decreases in GDP, investment, hours worked, and inflation. These predictions are consistent with empirical findings of Barsky and Sims. The model features research and development, sticky nominal wages, and the monetary authority responding to inflation and consumption growth. The proposed policy rule fits the actual Federal Funds rate as closely as an alternative policy rule responding to inflation and GDP growth, and is better at reducing distortion due to the nominal wage stickiness.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-173.pdf
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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-173.

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Date of creation: Mar 2011
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Handle: RePEc:hst:ghsdps:gd10-173
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  1. Robert Barsky & Mark Bergen & Shantanu Dutta & Daniel Levy, 2001. "What Can the Price Gap between Branded and Private Label Products Tell Us about Markups?," NBER Working Papers 8426, National Bureau of Economic Research, Inc.
  2. Pistaferri, Luigi, 2002. "Anticipated and Unanticipated Wage Changes, Wage Risk, and Intertemporal Labour Supply," CEPR Discussion Papers 3628, C.E.P.R. Discussion Papers.
  3. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band Pass Filter," NBER Working Papers 7257, National Bureau of Economic Research, Inc.
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  4. Alessandro Barattieri & Susanto Basu & Peter Gottschalk, 2010. "Some Evidence on the Importance of Sticky Wages," NBER Working Papers 16130, National Bureau of Economic Research, Inc.
  5. Nutahara, Kengo, 2009. "Internal and external habits and news-driven business cycles," MPRA Paper 12550, University Library of Munich, Germany.
  6. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
  7. Lilia Karnizova, 2008. "The Spirit of Capitalism and Expectation Driven Business Cycles," Working Papers 0804E, University of Ottawa, Department of Economics.
  8. Stefano Eusepi & Bruce Preston, 2009. "Labor supply heterogeneity and macroeconomic comovement," Staff Reports 399, Federal Reserve Bank of New York.
  9. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
  10. Christopher Gunn & Alok Johri, 2011. "News and knowledge capital," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 92-101, January.
  11. Robert B. Barsky & Eric R. Sims, 2009. "News Shocks," NBER Working Papers 15312, National Bureau of Economic Research, Inc.
  12. Deokwoo Nam & Jian Wang, 2010. "The effects of news about future productivity on international relative prices: an empirical investigation," Globalization and Monetary Policy Institute Working Paper 64, Federal Reserve Bank of Dallas.
  13. Jesus Fernández-Villaverde & Pablo Guerrón-Quintana & Juan F. Rubio-Ramírez, 2010. "Fortune or virtue: time-variant volatilities versus parameter drifting," Working Papers 10-14, Federal Reserve Bank of Philadelphia.
  14. Fujiwara, Ippei, 2010. "A Note On Growth Expectation," Macroeconomic Dynamics, Cambridge University Press, vol. 14(02), pages 242-256, April.
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