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On Stickiness, Cash in Advance, and Persistence

Author

Listed:
  • 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.)

Abstract

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.

Suggested Citation

  • Auray, Stephane & de Blas, Beatriz, 2007. "On Stickiness, Cash in Advance, and Persistence," Working Papers in Economic Theory 2007/05, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  • Handle: RePEc:uam:wpaper:200705
    as

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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.

    More about this item

    Keywords

    sticky prices; sticky wages; monetary facts; labor market facts; cash-in-advance;

    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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