CESifo Working Paper: Policy, Macroeconomics and Growth 4041
De Paoli, Scott, and Weeken [2010, Asset pricing implications of a New Keynesian model. Journal of Economic Dynamics and Control 34, 2056-73] study equity and bonds prices in a New Keynesian model with sticky nominal prices. This note argues that their model generates a behavior of the labor market variables that is contrary to empirical evidence and, as remedy for this deficiency, suggests a model with both sticky nominal wages and prices.
equity premium New Keynesian Model nominal rigidities