Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89082
Authors: 
Diaz, Sergio Ocampo
Year of Publication: 
2013
Series/Report no.: 
IDB Working Paper Series IDB-WP-400
Abstract: 
This paper argues that, in the presence of nominal wage rigidities, the existence of Rule-of-Thumb agents and price rigidities does not cause a change in the Taylor Principle as suggested by Galí et al. (2004), and that the only rigidity relevant for this result is that faced by Rule-of-Thumb consumers. For doing so, a New-Keynesian model with Rule-of-Thumb agents is proposed. The model discriminates between both type of agents when defining wage rigidities, thus al- lowing to identify and measure the factors that affect the Taylor Principle, this also allows to drop complete markets for Rule-of-Thumb agents, and the simple use of non-separable utility functions in order to determine the incidence of the wealth effect when facing staggered wages.
JEL: 
C68
E32
E37
Document Type: 
Working Paper

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