IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Estimating Quarterly Different Price and Wage Rigidity and Its Implication for Monetary Policy

  • Sung Ho Park

    (Bank of Korea)

Registered author(s):

    In New Keynesian economics, price and wage rigidity is a key factor in determining effects of monetary policy. As rigidity becomes stronger, the monetary policy becomes more effective. If this rigidity has seasonality, the effects of monetary policy may also have seasonality. Olivei and Tenreyo (2007) found that the effects of monetary policy in the US are quarterly different via quarter-dependent VAR and showed that these different effects of monetary policy is caused by the seasonality of wage rigidity by setting up the DSGE model with quarterly different wage rigidity which has different effects of monetary policy according to when monetary policy shocks occur. I extend the model of Olivei and Tenreyo (2007) by adding quarterly different price rigidity and compare which rigidity is more influential in determining the quarterly different effects of monetary policy. I also estimate the quarterly price and wage rigidity via Minimum Distance Approach. The results of this paper can be summarized as follows. Firstly, the impulse responses to monetary policy in the DSGE model change very much across quarters when we assume quarterly different wage rigidity. Impulse responses are strong(weak) if the monetary policy shocks occur in the quarter when the wage rigidity is strong(weak). However, these differences of impulse responses across quarters become weaker when we assume quarterly different price rigidity. This result is consistent to that of Christiano et al. (2005) who show that impulse responses do not change very much as values of price rigidity. Based on these impulse response results, we may that quarterly different impulse responses according to timing of monetary shocks depend mainly on quarterly varying wage rigidity. Secondly, the price puzzle occurs if monetary policy is implemented in the period when wage rigidity is strong. This result supports Rabanal (2007) and Henzel et al. (2009) who mphasize the role of wage rigidity in price puzzle. This results is Lastly, estimation results show that wage rigidity is quarterly different while price rigidity is not. Estimates of wage rigidity are high in the 2nd quarter and low in the 3rd quarter.However, estimates of price rigidity do not have particular patterns across quarters.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://www.economicdynamics.org/meetpapers/2013/paper_1367.pdf
    Download Restriction: no

    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1367.

    as
    in new window

    Length:
    Date of creation: 2013
    Date of revision:
    Handle: RePEc:red:sed013:1367
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Web page: http://www.EconomicDynamics.org/society.htm
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
    2. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
    3. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
    4. Henzel, Steffen & Hülsewig, Oliver & Mayer, Eric & Wollmershäuser, Timo, 2009. "The price puzzle revisited: Can the cost channel explain a rise in inflation after a monetary policy shock?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 268-289, June.
    5. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series 10, Institute for Advanced Studies.
    6. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
    7. Olivei, Giovanni & Tenreyro, Silvana, 2006. "The Timing of Monetary Policy Shocks," CEPR Discussion Papers 5716, C.E.P.R. Discussion Papers.
    8. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
    9. Rabanal, Pau, 2007. "Does inflation increase after a monetary policy tightening? Answers based on an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 906-937, March.
    10. 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.).
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:red:sed013:1367. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.