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Reconciling the Effects of Monetary Policy Actions on Consumption Within a Heterogeneous Agent Framework

  • Yamin Ahmad

    ()

    (Department of Economics, University of Wisconsin - Whitewater)

This paper incorporates heterogeneous agents into a NNS model with nominal inertia. Heterogeneous households are introduced into NNS models to try and reconcile the movements in interest rates, consumption and inflation. The key findings here are that heterogeneity and wage inertia are needed to help reconcile these observations. Aggregate consumption and its expected growth rate responds much more to myopic households than compared to optimizing households when myopic households set wages one periods in advance. When myopic households set wages in the current period, aggregate consumption and its expected growth rate is found to respond much more to the respective profiles for optimizing households.

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File URL: http://www.uww.edu/documents/colleges/cobe/economics/wpapers/05_02_ahmad.pdf
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Paper provided by UW-Whitewater, Department of Economics in its series Working Papers with number 05-02.

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Length: 51 pages
Date of creation: Jul 2004
Date of revision: Jul 2006
Handle: RePEc:uww:wpaper:05-02
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Web page: http://www.uww.edu/cobe/economics/main.html

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  1. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2007. "Euler equations and money market interest rates: A challenge for monetary policy models," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1863-1881, October.
  2. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
  3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  4. Tullio Jappelli, 1990. "Who is Credit Constrained in the U. S. Economy?," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 219-234.
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  6. Alon Brav & George M. Constantinides & Christopher C. Geczy, 2002. "Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 793-824, August.
  7. Pierpaolo Benigno & Michael Woodford, 2003. "Optimal Monetary and Fiscal Policy: A Linear Quadratic Approach," NBER Working Papers 9905, National Bureau of Economic Research, Inc.
  8. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  9. Bayoumi, Tamim & Laxton, Doug & Pesenti, Paolo, 2004. "Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assessment," CEPR Discussion Papers 4481, C.E.P.R. Discussion Papers.
  10. Galí, Jordi & Lopez-Salido, Jose David & Vallés Liberal, Javier, 2004. "Rule-of-Thumb Consumers and the Design of Interest Rate Rules," CEPR Discussion Papers 4347, C.E.P.R. Discussion Papers.
  11. Yamin Ahmad, 2002. "Money Market Rates and Implied CCAPM Rates: Some International Evidence," Working Papers gueconwpa~02-02-06, Georgetown University, Department of Economics.
  12. repec:fth:harver:1435 is not listed on IDEAS
  13. Orazio P. Attanasio & Guglielmo Weber, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 631-649.
  14. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," NBER Working Papers 8896, National Bureau of Economic Research, Inc.
  15. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  16. Annette Vissing-Jorgensen, 2002. "Limited Asset Market Participation and the Elasticity of Intertemporal Substitution," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 825-853, August.
  17. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
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