EconStor >
Technische Universität Darmstadt >
Institut für Volkswirtschaftslehre, Technische Universität Darmstadt >
Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/22525
  
Title:The Role of Money Demand in a Business Cycle Model with Staggered Wage Contracts PDF Logo
Authors:Gerke, Rafael
Rubart, Jens
Issue Date:2005
Series/Report no.:Darmstadt discussion papers in economics 142
Abstract:The question of the main determinants of persistent responses due to nominal shocks captures, at least since Chari et al. (2000), a major part of the recent macroeconomic debate. However, the question whether sticky wages and/or sticky prices are sufficient for persistent reactions of key economic variables remains open. In the present model we allow for nominal rigidities due to Taylor- like wage setting as well as price adjustment costs. However, as our analysis illustrates, smoothing marginal costs seems crucial to derive a contract multiplier, wage staggering alone is not sufficient. Without considering a more specific analysis of factor market frictions, we enforce a point made by Erceg (1997) by analyzing the structure of money demand. In particular, we analyze a ?standard? consumption based money demand function by varying the interest rate elasticity of money demand as well as the steady state rate of money holdings. Our results show that the persistency of the output/price dynamics can be affected crucially by the form of the implicit money demand function. In particular, it is shown that staggered wage contracts have to be accompanied by a sufficiently low interest rate elasticity, otherwise the model fails to reproduce reasonable responses of real variables.
Subjects:Monetary Policy Shocks
Sticky Prices
Staggered Wages
Money Demand
JEL:E41
E32
Document Type:Working Paper
Appears in Collections:Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt

Files in This Item:
File Description SizeFormat
ddpie_142.pdf267.72 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/22525

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.