On Stickiness, Cash in Advance, and Persistence

Stéphane Auray and Beatriz de Blas ()
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Beatriz de Blas: Universidad Autonoma de Madrid, Departamento de Analisis Economico

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

Abstract: This paper shows that a model which combines sticky prices and sticky wages with investment in the cash-in-advance constraint generates business cycle dynamics consistent with empirical evidence. The model reproduces the responses of the key macroeconomic variables to technology and money supply shocks; in particular, it generates enough output and in°ation persistence with standard stickiness parameters. This setup is also able to generate the liquidity effect after a money injection, overcoming a weakness in standard new Keynesian models. When taken to the data, the model explains qualitatively well the US postwar period, and does quantitatively better for the great in°ation of the 70s.

Keywords: sticky prices; sticky wages; monetary facts; labor market facts; cash-in-advance (search for similar items in EconPapers)
JEL-codes: E32 E41 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba
Date: 2009-09-01
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http://pages.usherbrooke.ca/gredi/wpapers/GREDI-0919.pdf First version, 2009 (application/pdf)

Related works:
Working Paper: On Stickiness, Cash in Advance, and Persistence (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:shr:wpaper:09-19

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