Nominal Rigidity and Monetary Uncertainty

Neil Rankin

No 890, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A dynamic, stochastic optimizing macromodel with predetermined money wages and labour market monopoly power is used to examine the effect on current macroeconomic variables of a temporary increase in variability of the future money supply. As a benchmark, we show that under perfect wage-price flexibility `uncertainty irrelevance' holds, when monetary uncertainty is appropriately defined. The introduction of wage stickiness causes future monetary uncertainty to raise the nominal interest rate, with a deflationary impact on current price and output, for plausible parameterizations. It also causes the money wage to be set higher, increasing the `natural' rate of unemployment.

Keywords: Interest Rates; Monetary Uncertainty; Nominal Rigidity; Output (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 1994-02
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Nominal rigidity and monetary uncertainty (1998)
Working Paper: NOMINAL RIGIDITY AND MONETARY UNCERTAINTY (1993)
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