Can Nominal Wage and Price Rigidities Be Equivalent Propagation Mechanisms? The Case of Open Economics

Bo William Hansen and Lars Mayland Nielsen ()
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Lars Mayland Nielsen: The National Bank of Denmark, Postal: Havnegade 5, 1093 Copenhagen K, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Does it matter for the propagation mechanism following nominal shocks whether nominal rigidities are specified as sticky wages instead of sticky prices? We analyze the question in a standard dynamic general equilibrium "new open macro-economy" model, which is solved analytically. By comparing the adjustment patterns of the terms of trade, in an otherwise unchanged model under, respectively, nominal wage and price rigidities, we find that the two types of rigidities give rise to the same persistence pattern. Specifically, nominal wage and price rigidities are equivalent "impact adjusted" propagation mechanisms. Results are presented for one-period nominal rigidities and two-period nominal staggering.

Keywords: Nominal shocks; nominal rigidities; propagation; persistence; staggering (search for similar items in EconPapers)
JEL-codes: E32 F41 (search for similar items in EconPapers)
Pages: 18
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