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Monetary Business Cycle Accounting

  • Sustek, Roman

This paper investigates the quantitative importance of various types of frictions for inflation and nominal interest rate dynamics by extending business cycle accounting to monetary models. Representing a variety of real and nominal frictions as `wedges' to standard equilibrium conditions allows a quantitative assessment of those frictions. Decomposing the data into movements due to these wedges shows that frictions that are equivalent to wedges in TFP and equilibrium conditions for asset markets are essential. In contrast, wedges in equilibrium conditions for capital accumulation and the resource constraint, and wedges capturing distortionary effects of sticky prices, play only a secondary role.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17518.

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Date of creation: 25 Sep 2009
Date of revision:
Handle: RePEc:pra:mprapa:17518
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