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Nominal Rigidities, Monetary Policy and Pigou Cycles

  • Stéphane Auray

    ()

    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Paul Gomme

    ()

    (Concordia University, CIREQ)

  • Shen Guo

    ()

    (China Academy of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China)

A chief goal of the Pigou cycle literature is to generate a boom in response to news of a future increase in productivity, and a bust if this improvement does not in fact take place. We nd that monetary policy can generate Pigou cycles in a two sector model with durables and non-durables, and nominal price rigidities { even when the Ramsey-optimal policy displays no such cycles. Estimated interest rate rules are a good t to data simulated under the Ramsey policy, implying that policymakers could come close to replicating the Ramsey-optimal policy.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0918.pdf
File Function: First version, 2009
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Paper provided by Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke in its series Cahiers de recherche with number 09-18.

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Length: 40 pages
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:shr:wpaper:09-18
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