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Rule of Thumb Consumers Meet Sticky Wages

  • Colciago, Andrea

It has been argued that rule of thumb consumers substantially alter the determinacy properties of simple interest rate rules and the dynamics of an otherwise standard New-keynesian model. In this paper we show that nominal wage stickiness helps re-establishing standard results. Key findings are that wage stickiness i) affects the shape of determinacy regions in the parameters space, restoring the relevance of the Taylor principle for the conduct of monetary policy; ii) implies that a rise in consumption in response to an innovation in government spending is not a robust feature of the model.

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File URL: http://mpra.ub.uni-muenchen.de/3275/1/MPRA_paper_3275.pdf
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File URL: http://mpra.ub.uni-muenchen.de/3756/1/MPRA_paper_3756.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3275.

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Date of creation: 01 Dec 2005
Date of revision: 27 Apr 2007
Handle: RePEc:pra:mprapa:3275
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  1. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
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  3. Fatás, Antonio & Mihov, Ilian, 1999. "Government Size and Automatic Stabilizers: International and Intranational Evidence," CEPR Discussion Papers 2259, C.E.P.R. Discussion Papers.
  4. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," NBER Working Papers 7571, National Bureau of Economic Research, Inc.
  5. Galí, Jordi & Lopez-Salido, Jose David & Vallés Liberal, Javier, 2004. "Rule-of-Thumb Consumers and the Design of Interest Rate Rules," CEPR Discussion Papers 4347, C.E.P.R. Discussion Papers.
  6. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
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  8. Stephanie Schmitt-Grohé & Martín Uribe, 2007. "Optimal simple and implementable monetary and fiscal rules," Working Paper 2007-24, Federal Reserve Bank of Atlanta.
  9. repec:fth:harver:1435 is not listed on IDEAS
  10. Charles T. Carlstrom & Timothy S. Fuerst, 2003. "Investment and interest rate policy: a discrete time analysis," Working Paper 0320, Federal Reserve Bank of Cleveland.
  11. Andrew T. Levin & Alexei Onatski & John Williams & Noah M. Williams, 2006. "Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 229-312 National Bureau of Economic Research, Inc.
  12. Stephanie Schmitt-Grohe & Martin Uribe, 2004. "Optimal Operational Monetary Policy in the Christiano-Eichenbaum-Evans Model of the U.S. Business Cycle," NBER Working Papers 10724, National Bureau of Economic Research, Inc.
  13. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
  14. Florin O. Bilbie, 2005. "Limited Asset Markets Participation, Monetary Policy and (Inverted) Keynesian Logic," Economics Series Working Papers 2005-W09, University of Oxford, Department of Economics.
  15. Giovanni Di Bartolomeo & Lorenza Rossi, 2005. "Efficacy of Monetary Policy and Limited Asset Market Participation," Macroeconomics 0508027, EconWPA.
  16. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2004. "Can Fiscal Policy Help Macroeconomic Stabilisation? Evidence from a New Keynesian Model with Liquidity Constraints," CESifo Working Paper Series 1171, CESifo Group Munich.
  17. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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