Nominal Rigidities, Monetary Policy and Pigou Cycles

Stéphane Auray, Paul Gomme () and Shen Guo ()
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Paul Gomme: Concordia University, CIREQ
Shen Guo: China Academy of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China

Cahiers de recherche from Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke

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 nd 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 t 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 E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2009-09-01
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http://pages.usherbrooke.ca/gredi/wpapers/GREDI-0918.pdf First version, 2009 (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:shr:wpaper:09-18

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