Nominal Rigidities, Monetary Policy and Pigou Cycles

Stéphane Auray, Paul Gomme () and Shen Guo ()
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Paul Gomme: Concordia University and CIREQ, http://alcor.concordia.ca/~pgomme

Working Papers from Concordia University, Department of Economics

Abstract: A chief goal of the Pigou cycle literature is to generate a boom in response to news of a future increase in productivity, and a bust if this improvement does not in fact take place. We find that monetary policy can generate Pigou cycles in a two sector model with durables and non-durables, and nominal price rigidities -- even when the Ramsey-optimal policy displays no such cycles. Estimated interest rate rules are a good fit to data simulated under the Ramsey policy, implying that policymakers could come close to replicating the Ramsey-optimal policy.

Keywords: Pigou cycles; monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E5 E4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-pke
Date: 2009-07-02
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http://alcor.concordia.ca/~pgomme/Pigou.pdf (application/pdf)

Related works:
Working Paper: Nominal Rigidities, Monetary Policy and Pigou Cycles (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:crd:wpaper:09005

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