Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/32807
Authors: 
Wesselbaum, Dennis
Year of Publication: 
2010
Series/Report no.: 
Kiel Working Paper 1629
Abstract: 
In the recent New Keynesian literature a standard assumption is that the price for which an intermediate good is sold to the final good firm is equal to the marginal costs of the intermediate good firm. However, there is empirical evidence that this need not to hold. This paper introduces price bargaining into an otherwise standard New Keynesian DSGE model and show that this model performs reasonably well in replicating the observed persistence values. We further discuss the role of those product market imperfections for monetary policy and find a trade-off between stabilizing intermediate or final good inflation. In addition, the Ramsey optimal monetary policy can be approximated reasonably well with a Taylor-type interest rate rule with weights on both inflation rates and output.
Subjects: 
Inflation and Output Persistence
Monetary Policy
Price Bargaining.
JEL: 
E31
E52
L10
Document Type: 
Working Paper

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