Monetary Policy Puzzle and wealth targeting consumers

Elliot Aurissergues ()
Additional contact information
Elliot Aurissergues: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Working Papers from HAL

Abstract: In this paper, I document that the three equation new keynesian model predicts a strong overreaction of real wages to monetary policy shocks, whereas the response is close to zero in datas. This puzzle may be solved by sticky wages but I show that this overreaction is created by the intertemporal choice of households, on which the recent forward guidance literature have cast doubts. Then, I build a simple new keynesian model with bounded rationality. At each period, households do not form a consistent plan for their lifetime but choose between leisure, consumption and future wealth. It transposes joy of giving model to the business cycles analysis. I show that this simple model generates more realistic response to monetary policy shocks than the three equation new keynesian model. The model also highlights the importance of perceived future wealth and asset supply. Their response to changes in real inetrest rates deeply affects consumption and leisure decision. This point could be useful for more complicated model like Heterogenous agents or Behavioral new keynesian model. JEL Classification: D83,D84

Keywords: Forward guidance; nonseparable preferences; bounded ratio- nality; euler equation; monetary policy shocks (search for similar items in EconPapers)
Date: 2017-10-27
New Economics Papers: this item is included in nep-dge and nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01625347v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://shs.hal.science/halshs-01625347v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-01625347

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().