NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Generating Real Persistent Effects of Monetary Shocks: How Much Nominal Rigidity Do We Really Need?

Olivier Jeanne

NBER Working Paper No. 6258
Issued in November 1997
NBER Program(s):   ME

This paper attempts to assess whether money can generate persistent economic" fluctuations in dynamic general equilibrium models of the business cycle. We show that a small" nominal friction in the goods market can make the response of output to monetary shocks large" and persistent if it is amplified by real wage rigidity in the labor market. We also argue that" given the level of real wage rigidity that is observed in developed countries nominal stickiness might be sufficient for money to produce economic fluctuations as persistent" as those observed in the data.

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Document Object Identifier (DOI): 10.3386/w6258

Published: European Economic Review, Vol. 42, no. 6 (June 1998): 1009-1032.

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