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Output Persistence from Monetary Shocks with Staggered Prices or Wages under a Taylor Rule

Author

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  • Sebastiano Daros
  • Neil Rankin

Abstract

We analytically examine output persistence from monetary shocks in a DSGE model with staggered prices or wages under a Taylor Rule for monetary policy. The best known such model assumes Calvo-style staggering of prices and flexible wages and is known to yield no persistence under a Taylor Rule. Switching to Taylor-style staggering introduces lagged output into the model’s ‘New Keynesian Phillips Curve’ equation. Despite this, we show it generates no persistence, whether staggering is in wages or prices. Surprisingly, however, Calvo-style staggering of wages does generate persistence, if there are decreasing returns to labour.

Suggested Citation

  • Sebastiano Daros & Neil Rankin, 2009. "Output Persistence from Monetary Shocks with Staggered Prices or Wages under a Taylor Rule," CDMA Conference Paper Series 0906, Centre for Dynamic Macroeconomic Analysis.
    • Handle: RePEc:san:cdmacp:0906
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    References listed on IDEAS

    as
    1. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    2. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, vol. 110(465), pages 664-686, July.
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    5. McCallum, Bennett T., 2007. "E-stability vis-a-vis determinacy results for a broad class of linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1376-1391, April.
    6. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
    7. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    8. Daros, Sebastiano & Rankin, Neil, 2009. "Output persistence from monetary shocks with staggered prices or wages under a Taylor Rule," Economics Letters, Elsevier, vol. 105(2), pages 148-151, November.
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    Cited by:

    1. Marcus Miller & Lei Zhang, 2015. "The Hedgehog and the Fox: From DSGE to Macro-Pru," Manchester School, University of Manchester, vol. 83, pages 31-55, September.
    2. Daros, Sebastiano & Rankin, Neil, 2009. "Output persistence from monetary shocks with staggered prices or wages under a Taylor Rule," Economics Letters, Elsevier, vol. 105(2), pages 148-151, November.

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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