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Generating Real Persistent Effects of Monetary Shocks: How Much Nominal Rigidity Do We Really Need?

  • Olivier Jeanne

This paper attempts to assess whether money can generate persistent economic" fluctuations in dynamic general equilibrium models of the business cycle. We show that a small" nominal friction in the goods market can make the response of output to monetary shocks large" and persistent if it is amplified by real wage rigidity in the labor market. We also argue that" given the level of real wage rigidity that is observed in developed countries nominal stickiness might be sufficient for money to produce economic fluctuations as persistent" as those observed in the data.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6258.

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Date of creation: Nov 1997
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Publication status: published as European Economic Review, Vol. 42, no. 6 (June 1998): 1009-1032.
Handle: RePEc:nbr:nberwo:6258
Note: ME
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  18. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  19. Kollman, R., 1996. "The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: a Quantitative Investigation," Cahiers de recherche 9614, Universite de Montreal, Departement de sciences economiques.
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