The Exchange Rate in a Dynamic-Optimizing Business Cycle Model with Nominal Rigidities: A Quantitative Investigation

The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation

This paper studies a quantitative dynamic-optimizing business cycle model of a small open economy with staggered price and wage setting. The model exhibits exchange rate overshooting in response to money supply shocks. The predicted variability of the nominal and, especially, of the real exchange rate is noticeably higher than in standard Real Business Cycle models with flexible prices and wage...

Nominal Price Rigidities in a Multisector Model

This paper uses a multisector sticky price model with cash-in-advance constraint to examine the implications of sectoral nominal price rigidities for the cyclical behavior of sectoral and aggregate movements in prices and output. The data suggest that correlations between sectoral output and price changes are substantially lower than would be implied by a flexible price model with sectoral tech...

Introducing nominal rigidities. A static model

Nominal rigidities and the dynamic effects of a monetary shock

Two dynamic sticky price models with monopolistic competition in the goods market are presented. In the first model, each intermediate goods producer faces quadratic costs of adjusting its nominal price as introduced by Rotemberg (1982); the second model incorporates staggered price setting as proposed by Taylor (1980) and recently discussed by Chari/Kehoe/McGrattan (2000). Using the approximat...

Accounting for the business cycle: Nominal rigidities, factor heterogeneity, and Austrian capital theory

An Austrian interpretation of the New Keynesian small menu cost model of the business cycle is proposed. Austrian and New Keynesian business cycle theories share the feature that the cycle is generated by rigidities which prevent the economy from adapting instantaneously to changing conditions. Austrian business cycle theory is capital-based, focusing on credit expansion which artificially lowe...