Abstract
We discuss an array of models of dynamically optimizing representative firms and workers, with inertia and price-wage stickiness modeled in various ways. The degree of price and wage stickiness bears no necessary connection to the strength of real effects of monetary policy. Matching the combination of real and nominal inertia in responses to monetary policy found in the data requires a more complex model, with more sources of stickiness and inertia, than has been standard in the literature. The pervasiveness of sluggish cross-variable responses in the macro data, combined with the implausibility of many of the microeconomic stories underlying adjustment cost models, suggests that we look for a different approach to modeling the sources of inertia in both prices and real variables. One such approach, based on limited information-processing capacity, is sketched.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Carnegie-Rochester Conference Series on Public Policy
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
