The Propagation of Macroeconomic Shocks: A Dynamic Model with Contracts and Imperfect Competition

Jean-Pascal Benassy

A chapter in New Trends in Macroeconomics, 2005, pp 1-20 from Springer

Abstract: Summary In order to study rigorously the propagation of macroeconomic shocks, we construct a dynamic model with wage and price staggering, where wage and price contracts are set by fully maximizing agents in a framework of imperfect competition. We derive the optimal values for wage and price contracts and compute closed form solutions to the resulting dynamics. We show that wage and price contracts of reasonable durations can create persistence and a hump in the response of both output and inflation to monetary shocks.

Keywords: Persistence; Staggered wages; Staggered prices; Imperfect competition (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-540-28556-4_1

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DOI: 10.1007/3-540-28556-3_1

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