Monetary Business Cycle Accounting

Roman Sustek

Review of Economic Dynamics, 2011, vol. 14, issue 4, 592-612

Abstract: This paper investigates the quantitative importance of various types of distortions for inflation and nominal interest rate dynamics by extending business cycle accounting to monetary models. Representing various classes of real and nominal distortions as 'wedges' in standard equilibrium conditions allows a quantitative assessment of those distortions. Decomposing the data into movements due to these wedges shows that distortions generating movements in TFP and wedges in equilibrium conditions for asset markets are essential. In contrast, wedges capturing the effects of sticky prices play less important role. These results are robust to alternative implementations of the accounting method. (Copyright: Elsevier)

Keywords: Business cycle accounting; Inflation; Nominal interest rate (search for similar items in EconPapers)
JEL-codes: E31 E32 E43 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (24)

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DOI: 10.1016/j.red.2010.001

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