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On Stickiness, Cash in Advance, and Persistence

Author

Listed:
  • Stéphane Auray

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

  • Beatriz de Blas

    (Universidad Autonoma de Madrid, Departamento de Analisis Economico)

Abstract

This paper shows that a model which combines sticky prices and sticky wages with investment in the cash-in-advance constraint generates business cycle dynamics consistent with empirical evidence. The model reproduces the responses of the key macroeconomic variables to technology and money supply shocks; in particular, it generates enough output and in°ation persistence with standard stickiness parameters. This setup is also able to generate the liquidity effect after a money injection, overcoming a weakness in standard new Keynesian models. When taken to the data, the model explains qualitatively well the US postwar period, and does quantitatively better for the great in°ation of the 70s.

Suggested Citation

  • Stéphane Auray & Beatriz de Blas, 2009. "On Stickiness, Cash in Advance, and Persistence," Cahiers de recherche 09-19, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:09-19
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0919.pdf
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    References listed on IDEAS

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    Cited by:

    1. Auray, Stéphane & de Blas, Beatriz, 2013. "Investment, matching and persistence in a modified cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 591-610.

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    More about this item

    Keywords

    sticky prices; sticky wages; monetary facts; labor market facts; cash-in-advance;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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