Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152581
Authors: 
Casares, Miguel
Year of Publication: 
2002
Series/Report no.: 
ECB Working Paper 147
Abstract: 
One of the most significant characteristics of optimizing models is that the behavioral equations involved are typically forward looking, i.e. agents are concerned about the futures rather than the past. This creates difficulties when modelling some of the business-cycle patterns widely observed in modern economies. For example, it is not easy to obtain the delay in the response of the rate of inflation to a monetary shock. This paper shows that an optimizing monetary model with endogenous capital, sticky prices, sticky wages, and adjustment costs of investment, can replicate a lag in the maximum response of both output and inflation to an interest rate shock when taking into account a time-to-build requirement for investment projects.
JEL: 
E12
E22
E47
Document Type: 
Working Paper

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