Staggered Price Setting Research Articles

Macroeconomic implications of the government budget: Some basic considerations

We study the implications of changing the money/bonds ratio in a highly stylized model with Sidrauski-type families and non-synchronous, staggered price setting. We show that if the interest elasticity of the demand for money is less than unity, an open market sale that permanently increases the bonds/money ratio results in lower welfare, no matter how strong is its impact on reducing the short-run rate of inflation; in addition, we also show, using simulation analysis, the possibility that the short-run output loss of such an experiment may be extremely large.