Nominal Rigidities (nominal + rigidity)

Distribution by Scientific Domains


Selected Abstracts


The Cost of Nominal Rigidity in NNS Models

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2007
MATTHEW B. CANZONERI
cost of nominal rigidity We present a model with Calvo wage and price setting, capital formation, and estimated rules for government spending and monetary policy. Our model captures many aspects of U.S. data, including the volatility that has been observed in various efficiency gaps. We estimate the cost of nominal rigidity,welfare under flexible wages and prices minus welfare with nominal rigidities,to be as much as 3% of consumption each period. Since there are interest rate rules that virtually eliminate this cost, our model suggests that,contrary to Lucas's (2003) assertion,there is considerable room for improvement in demand management policy. [source]


Optimal Monetary Policy with Price and Wage Rigidities

ECONOMIC NOTES, Issue 1 2006
Massimiliano Marzo
In this paper, I search for an optimal configuration of parameters for variants of the Taylor rule by using an accurate second-order welfare-based method within a fully microfounded dynamic stochastic model, with price and wage rigidities, without capital accumulation. A version of the model with distortionary taxation is also explicitly tested. The model is solved up to second-order solution. Optimal rules are obtained by maximizing a conditional welfare measure, differently from what has been done in the current literature. Optimal monetary policy functions turn out to be characterized by inflation targeting parameter lower than in empirical studies. In general, the optimal values for monetary policy parameters depend on the degree of nominal rigidities and on the role of fiscal policy. When nominal rigidities are higher, optimal monetary policy becomes more aggressive to inflation. With a tighter fiscal policy, optimal monetary policy turns out to be less aggressive to inflation. Impulse-response functions based on second-order model solution show a non-affine pattern when the economy is hit by shocks of different magnitude. [source]


An empirical analysis of nominal rigidities and exchange rate overshooting: an intertemporal approach

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2003
Gonyung Park
Abstract This paper develops a system of equations from a model that combines an intertemporal approach with nominal rigidities, and empirically examines for five foreign currencies if exchange rates overshoot. Exchange rate overshooting is considered as a country's idiosyncrasy that depends on characteristics of the goods produced by the country. Empirical results show that exchange rates tend to overshoot in response to the US monetary shocks and undershoot in response to foreign monetary shocks. According to the underlying framework of consumption-based intertemporal optimization, the results imply that the consumption demand is elastic for foreign goods and inelastic for the US-produced goods. Copyright 2003 John Wiley & Sons, Ltd. [source]


The Cost of Nominal Rigidity in NNS Models

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2007
MATTHEW B. CANZONERI
cost of nominal rigidity We present a model with Calvo wage and price setting, capital formation, and estimated rules for government spending and monetary policy. Our model captures many aspects of U.S. data, including the volatility that has been observed in various efficiency gaps. We estimate the cost of nominal rigidity,welfare under flexible wages and prices minus welfare with nominal rigidities,to be as much as 3% of consumption each period. Since there are interest rate rules that virtually eliminate this cost, our model suggests that,contrary to Lucas's (2003) assertion,there is considerable room for improvement in demand management policy. [source]


The mechanics of price adjustment: new evidence on the (un)importance of menu costs

MANAGERIAL AND DECISION ECONOMICS, Issue 7 2007
Rajesh Chakrabarti
This paper examines nominal price rigidities in an environment, e-commerce, where literal menu costs can be assumed not to exist. We argue that if we can empirically show that nominal rigidities do still exist in the e-commerce environment, then it implies that other kinds of costs besides menu costs, such as management costs, must be causing these nominal rigidities. This evidence is of importance because of the central role that menu costs play in Keynesian macroeconomics. In this paper we examine the price changing behavior of two leading online booksellers,Amazon.com and BarnesandNoble.com,and find strong evidence that nominal price rigidities do indeed persist on the Internet. Copyright 2007 John Wiley & Sons, Ltd. [source]


Nominal Wage Rigidity in Contract Data: A Parametric Approach

ECONOMICA, Issue 280 2003
Louis N. Christofides
Using wage agreements reached in the Canadian unionized sector during 1976,99, a period of high as well as exceptionally low inflation, we consider how histograms of wage adjustment changed as inflation reached the low levels of the 1990s. The histograms and parametric tests suggest that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero. There is some evidence of modest menu-cost effects. We examine whether the rigidity features of wage adjustment are sensitive to indexation provisions, and investigate whether the distinction between short and long contracts is useful. [source]


The Cost of Nominal Rigidity in NNS Models

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 7 2007
MATTHEW B. CANZONERI
cost of nominal rigidity We present a model with Calvo wage and price setting, capital formation, and estimated rules for government spending and monetary policy. Our model captures many aspects of U.S. data, including the volatility that has been observed in various efficiency gaps. We estimate the cost of nominal rigidity,welfare under flexible wages and prices minus welfare with nominal rigidities,to be as much as 3% of consumption each period. Since there are interest rate rules that virtually eliminate this cost, our model suggests that,contrary to Lucas's (2003) assertion,there is considerable room for improvement in demand management policy. [source]