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On Stickiness, Cash in Advance, and Persistence

  • Auray, Stephane

    ()

    (Universite Lille 3, GREMARS and CIRPEE, Villeneuve d'Acsq cedex, France)

  • de Blas, Beatriz

    ()

    (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)

This paper shows that a model which combines sticky price 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, the model generates enough output and inflation persistence with standard stickiness parameters. This setup is also able to generate the liquidity effect after a money injection, overcoming other standard new Keynesian models.

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Paper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2007/05.

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Length: 33 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:uam:wpaper:200705
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  9. 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.
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