NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

Lawrence J. Christiano, Martin Eichenbaum, Charles Evans

NBER Working Paper No. 8403
Issued in July 2001
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

We present a model embodying moderate amounts of nominal rigidities which accounts for the observed inertia in inflation and persistence in output. The key features of our model are those that prevent a sharp rise in marginal costs after an expansionary shock to monetary policy. Of these features, the most important are staggered wage contracts of average duration three quarters, and variable capital utilization.

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Document Object Identifier (DOI): 10.3386/w8403

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