Optimal monetary policy with staggered wage and price contracts

Erceg, Christopher J.; Henderson, Dale W.; Levin, Andrew T.

doi:10.1016/s0304-3932(00)00028-3

Cited by 1,496 publications

(505 citation statements)

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“…We follow the work of Erceg et al (2000) by assuming that labour is supplied by 'household unions'acting non-competitively. Household unions combine individual households'labour supply according to:…”

Section: Wage Settingmentioning

confidence: 99%

Financial shocks and the US business cycle

Nolan

Thoenissen

2009

Journal of Monetary Economics

148

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Employing the financial accelerator (FA) model of Bernanke, Gertler and Gilchrist (1999) enhanced to include a shock to the FA mechanism, we construct and study shocks to the efficiency of the financial sector in post-war US business cycles. We find that financial shocks are very tightly linked with the onset of recessions, more so than TFP or monetary shocks. The financial shock invariably remains contractionary for sometime after recessions have ended. The shock accounts for a large part of the variance of GDP and is strongly negatively correlated with the external finance premium. Second-moments comparisons across variants of the model with and without a (stochastic) FA mechanism suggests the stochastic FA model helps us understand the data. JEL Classification: E30, E44, E52.

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Section: Wage Settingmentioning

confidence: 99%

Financial shocks and the US business cycle

Nolan

Thoenissen

2009

Journal of Monetary Economics

148

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“…In the standard new Keynesian model, the homogeneous labor services supplied to the competitive labor market by labor retailers (contractors) who combine the labor services supplied to them by households who monopolistically supply specialized labor services (see Erceg, Henderson and Levin (2000)). Our search-based model dispenses with the specialized labor services abstraction.…”

Section: Introductionmentioning

confidence: 99%

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

2010

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The current …nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from …nancial factors. It is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations. Some questions which the dominating extant business cycle models are mute on, but that we would like to answer are: How important are …nancial and labor market frictions for the business cycle dynamics of a small open economy? In particular, what are the quantitative e¤ects of …nancial factors on output and in ‡ation, and how do they interact with monetary policy? What drives the variation in the intensive and extensive margin of labor supply respectively? What is the estimated Frisch elasticity in a model that allows for both an intensive and an extensive margin of labor supply? In order to address these questions we extend what is becoming the standard new Keynesian model in three important dimensions. First, we incorporate …nancial frictions in the accumulation and management of capital. Second, we model the labor market using a search and matching framework. Third, we extend the model into a small open economy setting. We make a theoretical contribution by incorporating endogenous job separation in this rich framework. Finally, we estimate the full model using Bayesian techniques and illustrate the importance of the various frictions.

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“…More directly related to the questions raised in the introduction, Erceg et al (2000) show that the model with staggered price and wage setting generates a tradeoff between the variability of price inÀation, wage inÀation and the output gap. If there is more than one source of nominal rigidity in the economy, stabilising the price level does not imply stabilising output around the Pareto-optimal level that would obtain in the Àexible price and wage case.…”

Section: An Estimated Model For Policy Evaluationmentioning

confidence: 98%

“…The model is a slight variant of the one developed in Erceg et al (2000). It is a model of price inÀation, wage inÀation and output determination in which the real effects of monetary policy are due to imperfect competition and staggered price and wage setting in goods and labour markets.…”

Section: An Estimated Model For Policy Evaluationmentioning

confidence: 99%

Forecast-based Monetary Policy

Amato

Laubach

2000

SSRN Journal

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Fax: +41 61 / 280 91 00 and +41 61 / 280 81 00This publication is available on the BIS website (www.bis.org). This article analyses the welfare consequences of delegating to the central bank the task of minimising deviations of forecasts of goal variables from their target values. The delegated objectives considered in this article are motivated by the observation that central banks oftentimes operate under objectives which do not necessarily represent society's preferences. The analysis is performed using an estimated model of optimising households and firms that generates tradeoffs between stabilising wage and price inflation and the output gap. We find that when the central bank's objective is defined solely in terms of price inflation, it is welfare optimal to stabilise only those fluctuations in price inflation that are forecastable at least five quarters ahead. On the other hand, when the central bank's objective involves both wage and price inflation stabilisation, the central bank should stabilise all fluctuations in these variables, not just those forecastable at some horizon. © Bank for

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Optimal monetary policy with staggered wage and price contracts

Cited by 1,496 publications

References 29 publications

Financial shocks and the US business cycle

Financial shocks and the US business cycle

Introducing Financial Frictions and Unemployment into a Small Open Economy Model

Forecast-based Monetary Policy

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