Sticky Demand vs. Sticky Prices
نویسنده
چکیده
Sticky demand – sticky nominal spending – acts as a substitute for sticky prices. In an inventorytheoretic model of the demand for money, monetary injections are offset by endogenous movements in velocity that keep nominal spending flat. When embedded in a sticky price model, this reduces the model’s reliance on implausibly large amounts of exogenous stickiness. For example: 6 months asset market segmentation plus 3 months stickiness gives as much persistence as a model with no segmentation and 12 months stickiness. Inventory-theoretic money demand gives rise to a monetary transmission mechanism whereby policy shocks induce slow moving changes in the distribution of money which are in turn translated into slow, cumulative movements in aggregate output and the distribution of consumption across households. Relative to a benchmark sticky price model, this reduces the initial impact effect of a monetary policy shock and leads to a delayed “hump-shaped” output response. ∗University of California, Los Angeles; and University of Melbourne. Email: . This research was supported by a University of Melbourne Faculty Research Grant. I would like to thank Andy Atkeson for many helpful discussions and other seminar participants at UCLA for constructive comments.
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