EconPapers    
Economics at your fingertips  
 

Sticky Prices Versus Monetary Frictions: An Estimation of Policy Trade-offs

S. Boragan Aruoba () and Frank Schorfheide ()

No 14870, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a two-sector monetary model with a centralized and decentralized market. Activities in the centralized market resemble those in a standard New Keynesian economy with price rigidities. In the decentralized market agents engage in bilateral exchanges for which money is essential. The model is estimated and evaluated based on postwar U.S. data. We document its money demand properties and determine the optimal long-run inflation rate that trades off the New Keynesian distortion against the distortion caused by taxing money and hence transactions in the decentralized market. Target rates of -1% or less maximize the social welfare function we consider, which contrasts with results derived from a cashless New Keynesian model.

JEL-codes: C5 E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2009-04
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Published as S. Boragan Aruoba & Frank Schorfheide, 2011. "Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-Offs," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 60-90, January.

Downloads: (external link)
http://www.nber.org/papers/w14870.pdf (application/pdf)

Related works:
Journal Article: Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-Offs (2011) Downloads
Working Paper: Sticky prices versus monetary frictions: an estimation of policy trade-offs (2009) Downloads
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: http://EconPapers.repec.org/RePEc:nbr:nberwo:14870

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14870

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().

 
Page updated 2014-10-17
Handle: RePEc:nbr:nberwo:14870