Nominal Rigidities, Monetary Policy and Pigou Cycles

Stéphane Auray, Paul Gomme and Shen Guo

No 12006, Working Papers from Concordia University, Department of Economics

Abstract: Capturing the boom phase of Pigou cycles and resolving the comovement problem requires positive sectoral comovement. This paper addresses these observations using a two sector New Keynesian model. Price rigidities dampen movements in the relative price of durables following a monetary policy shock. Durables and nondurables are estimated to be complements in utility, allowing for a resolution of the comovement problem for modest degrees of price rigidity. Nominal rigidities also make firms forward-looking in their pricing behaviour which leads to relative price dynamics that generate positive sectoral comovement in the boom phase of a Pigou cycle.

Keywords: Pigou cycles; comovement problem; monetary policy (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2012-07
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 (2)

Downloads: (external link)
http://paulgomme.github.io/Pigou-paper.pdf (application/pdf)

Related works:
Journal Article: Nominal Rigidities, Monetary Policy and Pigou Cycles (2013)
Working Paper: Nominal Rigidities, Monetary Policy and Pigou Cycles (2011)
Working Paper: Nominal Rigidities, Monetary Policy and Pigou Cycles (2010)
Working Paper: Nominal Rigidities, Monetary Policy and Pigou Cycles (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:crd:wpaper:12006

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