Firm-specific capital, nominal rigidities, and the Taylor principle

Tommy Sveen () and Lutz Weinke
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Lutz Weinke: Duke University

No 2006/06, Working Paper from Norges Bank

Abstract: In the presence of firm-specific capital the Taylor principle can generate multiple equilibria. Sveen and Weinke (2005b) obtain that result in the context of a Calvo-tyle sticky price model. One potential criticism is that the price stickiness which is needed for our theoretical result to be relevant from a practical point of view is somewhat to the high part of available empirical estimates. In the present paper we show that if nominal wages are not fully flexible (which is an uncontroversial empirical fact) then the Taylor principle fails already for some minor degree of price stickiness. We use our model to explain the consequences of both nominal rigidities for the desirability of alternative interest rate rules.

Keywords: Nominal Rigidities; Aggregate Investment; Monetary Policy. (search for similar items in EconPapers)
JEL-codes: E22 E31 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2006-05-31
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Firm-specific capital, nominal rigidities, and the Taylor principle (2007)
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