Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital

Michael Gail ()

Volkswirtschaftliche Diskussionsbeiträge from Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht

Abstract: This paper considers the implications of adding capital as a factor of production in a stochastic DGE model with sticky prices. Particular attention is given to the role of money demand and to the form of the utility function. I consider cash-in-advance- (CIA) as well as money-in-the-utility-function- (MIU) models, with CRRA and GHH preferences, to evaluate their ability to generate persistence. It is shown that even in a MIU-model with a GHH utility function and a high elasticity of labor supply with respect to the real wage the additional intertemporal substitution channel opened through capital accumulation does have a significant dampening influence on the persistence effects of monetary shocks. In a CIA-setup with GHH preferences the model can generate the liquidity effect. A multiplicatively separable CRRA utility function in the MIU-model cannot account for the observed persistent reactions of inflation and output either.

Keywords: Monetary Policy; New Neoclassical Synthesis; Sticky Prices; Persistency (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2002-02, Revised 2003-05-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.wiwi.uni-siegen.de/vwl/repec/sie/papers/103-02.pdf (application/pdf)

Related works:
Working Paper: Persistency and Money Demand Distortions in a Stochastic DGE Model with Sticky Prices and Capital (2002)
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:sie:siegen:103-02

Access Statistics for this paper

More papers in Volkswirtschaftliche Diskussionsbeiträge from Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht Contact information at EDIRC.
Bibliographic data for series maintained by Michael Gail ().