Real and Nominal PropAgation of Nominal Shocks

The role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model. While neither a real propagation mechanism (capital accumulation) with one-period nominal contracts nor n...

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Bibliographic Details
Published in:The Economic journal (London) 2004-01, Vol.114 (492), p.174-195
Main Author: Andersen, Torben M.
Format: Article
Language:English
Subjects:
Business cycles
Capital accumulation
Capital stocks
Contracts
Economic analysis
Economic fluctuations
Economic models
Economic shock
Economics
Employment
Labor supply
Monetary policy
Monetary theory
Nominal rigidities
Nominal wages
Propagation
Real wages
Studies
Wages
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Summary:The role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model. While neither a real propagation mechanism (capital accumulation) with one-period nominal contracts nor nominal propagation (staggered nominal contracts) in the absence of any real propagation can generate plausible impulse responses with strong persistence, it is shown that the two mechanisms interact so as to strengthen persistence (possibly unit roots) and generate more plausible impulse responses.
ISSN:0013-0133
1468-0297
DOI:10.1046/j.0013-0133.2003.00182.x